What Is Fannie Mae?

Fannie Mae, officially known as the Federal National Mortgage Association (FNMA), is a government-sponsored enterprise (GSE) created by Congress in 1938 to help make homeownership more accessible and affordable. Rather than lending money directly to homebuyers, Fannie Mae purchases mortgages from approved lenders, providing those lenders with additional funds to make new home loans.

What Exactly Does Fannie Mae Do?

When a lender originates a mortgage that meets Fannie Mae's guidelines, Fannie Mae may purchase that loan. The mortgage is then often bundled with other loans into mortgage-backed securities (MBS), which are sold to investors. This process helps keep money flowing through the housing market and supports mortgage availability nationwide.

What Is the Difference Between Freddie Mac and Fannie Mae?

Both Fannie Mae and Freddie Mac were created by the U.S. government to purchase mortgages from other lenders and then provide access to these loans to others. Any conforming loan will meet the funding criteria of Freddie Mac and Fannie Mae.

Fannie Mae was created around the time of the Great Depression, 30 years before Freddie Mac. A general difference between the two is that Fannie Mae is more likely to get loans from larger banks and lenders. Freddie Mac tends to work with smaller banks or credit unions.

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Fannie Mae Mortgage Programs

Fannie Mae offers several different conventional mortgage programs. Here’s an overview of the primary types of mortgage loans that they back.

HomeReady

The HomeReady program allows low-income borrowers to buy a home with as little as 3% down or refinance their existing home with as little as 3% in existing equity. However, because the program is designed for low-income borrowers, there are income limits.

To qualify, you must make 80% or less of the median income of the area. But if you’re a first-time buyer, you can still purchase a home for 3% down with no income limits.

HomeStyle Renovation

In a Fannie Mae HomeStyle Renovation, you can purchase a home that requires renovation and remodeling and include the cost of these upgrades in the loan amount. This eliminates the need to take out multiple loans for the purchase of the home and any renovations it needs. 

HomeStyle Energy

Similar to the HomeStyle Renovation option, the HomeStyle Energy program provides borrowers the funding they need to make energy-efficient improvements in addition to the home loan itself. This allows buyers to make renovations and improvements without the hassle or cost of multiple loans.

RefiNow

RefiNow is a recent refinancing program launched by the Federal Housing Finance Agency (FHFA) and administered through Fannie Mae. The program is designed to reduce the cost of homeownership by leveraging lower interest rates. 

However, only Fannie Mae-backed loans qualify for the RefiNow program. Still, if you qualify, the program can reduce the financial burden of homeownership.

Student Loan Cash-Out Refinance

Are you struggling with student loan debt? Fannie Mae’s Student Loan Cash-Out Refinance program allows you to use the equity in your home to pay off student loan debt. 

You’ll simply take out a new mortgage for more than you currently owe on the property. The excess will be paid to the student loan lender. To qualify, your new loan must pay your student loan in full. You’ll then make payments of principal and interest on your new mortgage. But if you miss these mortgage payments, you risk losing your home.

Conventional Loan Requirements

Fannie Mae programs are known as conventional loans. Understand the requirements for these programs.

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Pros and Cons of Fannie Mae Loans

If you’re looking for affordable mortgages, Fannie Mae offers programs that can help. But before you seek out these programs, you might consider the pros and cons of Fannie Mae loans.

Pros

Positively, Fannie Mae loans offer benefits that include:

• Access to affordable housing for low-income buyers
• Ability to buy single-family homes, multi-family units, and other housing types
• Flexible options for home repair and remodeling
• Diverse mortgage options

Fannie Mae provides access to affordable housing regardless of the state of the U.S. housing market.

Cons

On the other hand, Fannie Mae loans come with some drawbacks, including:

• Some programs have higher fees and costs
• Some programs have income limits
• Complexity can create delays in securing a loan
• Extended loan programs can extend costs over the lifetime of the loan

However, your exact experience may depend on which Fannie Mae loan you pursue.

What’s the Difference Between Fannie Mae and FHA Loans?

Low-income borrowers might also consider FHA loans. These loans, backed by the Federal Housing Administration (a part of the U.S. Department of Housing and Urban Development), are available to borrowers with low income or credit scores. The key differences include:

• Fannie Mae loans have a lower down payment requirement
• FHA loans may have lower interest rates
• FHA loans have lenient credit requirements

You may need to compare individual loan options to determine which program is right for you.

The Need for the Right Lender

Which loan program is right for you? That depends on your budget and goals. Talking to the right lender can help you gain perspective and find the loan program that fits your needs.

This article is for educational purposes only and does not constitute financial or mortgage advice. Loan programs, rates, and guidelines may change at any time. All loans are subject to credit approval and underwriting. For guidance tailored to your situation, consult a licensed mortgage professional.