What's a Fannie Mae Loan?

Dave explains to a caller what a Fannie Mae loan is.

QUESTION: RuthAnn asks Dave to explain what a Fannie Mae loan is.

ANSWER: A Fannie Mae loan is a conventional mortgage and is nicknamed Fannie Mae, which stands for FNMA (Federal National Mortgage Association).  Fannie Mae is a national association of mortgage companies.  It means that the loan was underwritten with a generic set of guidelines.  When several people do those types of mortgages, they can be combined into one block of mortgages and then sold as a bond.  That’s why bond interest rates affect mortgage interest rates.

FHA, the Federal Housing Administration, is a government-insured grouping of mortgages that can be secured as well and underwritten by a set of standard guidelines. 

The Fannie Mae loan is the least expensive of the three types of mortgages – VA, FHA, and FNMA – but it requires a higher down payment.  But if you haven’t got a 20% down payment, you shouldn’t be buying the house anyway.