Purchasing a home can seem overwhelming—especially when people keep talking about Fannie and Freddie. What does that mean? Where do they fit in the homebuying process?
With the right lender and resources, the process doesn’t have to be complicated.
At The Federal Savings Bank, we want you to feel confident as you purchase your home. We’ll start today by explaining how to get a government loan, the benefits of the Fannie and Freddie programs, and how these loans work.
Lastly, we will give you a head start on the process so you feel confident taking the next step toward homeownership.
Understanding Fannie and Freddie
Congress created the Fannie Mae and Freddie Mac programs to help make homeownership affordable.
Fannie Mae loans have helped homeowners since The Great Depression when homeownership was becoming far too challenging. Freddie Mac was organized in 1970, to help boost and enhance the housing market.
Fannie and Freddie loan programs are not offered directly from Fannie or Freddie to buyers, and they do not originate their loans.
Instead, Fannie and Freddie purchase loans from lenders and then sell these loans to government entities. Because of this, lenders can offer borrowers more loans with better rates and terms.
Lenders offering these loans must follow the guidelines and requirements set by Fannie and Freddie.
With Fannie or Freddie, you may qualify with a credit score of about 620, a debt-to-income ratio of around 50%, and a down payment as low as 3%.
Again, these numbers can vary depending on your financial history and situation, and in some cases, you may not have to meet a credit score requirement.
You may also be required to take an educational homeownership course from a certified counselor before completing the process.
Types of Freddie and Fannie Loans
Some of the most popular Fannie Mae loans include HomeReady, 97% Loan to Value, and HFA Preferred. These options are sought out by buyers looking for down payment assistance.
Some of Freddie’s well-known loan programs are Home Possible, CHOICEHome, and the HomeOne Mortgage. These affordable loans are designed to help low-income borrowers attain homeownership.
Loans offered by Fannie and Freddie also include refinancing products and loans for home renovation.
What to expect with a loan from Fannie Mae or Freddie Mac
Fannie and Freddie offer loan programs for first-time buyers, fixer-uppers, and refinancers. Their loan programs are popular due to benefits such as flexible qualifications and little-to-no down payment options.
Requirements may vary depending on the loan you choose and the lender you work with.
For example, Fannie Mae and Freddie Mac loans have different credit score requirements but will ultimately depend on the lender you choose and what they require.
A down payment is often the most expensive barrier to homeownership for many buyers, ending up usually around 10-20% of the loan.
But with a government loan, that range can drastically drop to 3-5%. Some loan products even offer a no-down payment option.
Similar to the requirements, the process to obtain a Fannie Mae or Freddie Mac loan can vary depending on the type of loan and lender you choose.
However, you can typically expect the following steps:
- Research homes and Fannie/Freddie lenders in your desired area
- Determine how much house you can afford with a mortgage calculator
- Get pre-approved for a loan by a qualified lender
- Find a home you’d like to make an offer on and begin the official loan application
- Underwriting will begin and borrower is notified of approval or denial
- If approved, the closing process begins
- Pay your down payment and closing costs to the lender
- Sign off all paperwork and close on your new home
The homebuying process doesn’t have to be complicated. You can expect the above steps in any Freddie or Fannie-provided loan program.
So, how do you get started with this mortgage process? Let’s explore that answer in-depth.
How to prepare for your Freddie or Fannie mortgage loan
The unofficial first step in the process is to determine which lender is right for you and speak with them about pre-qualification. This is a similar but more casual process than pre-approval where the lender reviews your financial information and lets you know what you could qualify for.
It helps to have an idea before you meet with the lender of what you’re looking for, how much you can afford, and your homeownership goals to get the most out of your meeting.
A mortgage calculator can help you establish a budget and how much you can afford on a home.
These steps are optional but can help you connect with your lender and set you up for success.
Together, with your lender, you can filter through the Fannie and Freddie loan programs you may qualify for and determine what suits your needs best.
When you feel confident that all of your questions to the lender are answered clearly, you’ve determined the loan you want and how much you can afford, then you can apply for pre-approval.
Pre-approval is a letter provided by your lender that states how much you may qualify for a home loan. It’s not an official loan commitment but it helps to streamline the application process once you find a home and helps you outline your budget when house hunting.
Sellers often only consider offers that have pre-approval letters attached to be confident that the deal won’t fall through.
The Federal Savings Bank—Proud to help you find the best loan type for your future
It’s our hope that you have a better understanding of Fannie Mae and Freddie Mac loan programs and can now feel confident in your journey to homeownership.
No matter what your goals or dreams are, we provide a wide array of loan products, from FHA loans to VA, Construction, Fannie/Freddie, and more
Our team will help guide you to the loan that makes the most sense for you.
If you’re ready to get started—start our simple online application today.
Subject to credit approval. Terms and conditions may apply. Subject to VA eligibility requirements. Property insurance is required on all loans secured by property. Down payment assistance requirements are based on the mortgage insurer or guarantor’s guidelines. Borrower may fund down payment and closing costs. Down Payment Assistance Program, which assist eligible homebuyers with purchasing a home. Down payment assistance programs are not eligible for all potential homebuyers.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to you individual situation.
