What Is the Difference Between Federal Home Loans & Fannie Mae Home Loans?
FHA loans, or Federal Housing Administration loans, are government-backed loans designed to help middle- to low-income borrowers with less-than-perfect credit buy homes. Fannie Mae loans are conventional mortgages with significantly different guidelines.
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Requirements
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FHA loans were created with low-income borrowers in mind. The minimum down payment for these loans is 3.5 percent. Private mortgage insurance (PMI) is required on these loans. Fannie Mae loans are a more traditional mortgage option, with a minimum 5 percent down payment. PMI is required on Fannie Mae loans only if the down payment is less than 20 percent.
Rates
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FHA loans offer competitive rates and allow borrowers with lower credit scores to qualify for mortgages. Fannie Mae has stricter credit-score guidelines and charges higher rates for lower-credit-score borrowers.
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Terms
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FHA loans are available in fixed- and variable-rate options, with terms of 15 or 30 years. Fannie Mae loans also offer fixed- and variable-rate options but have a wider range of terms, from 10 to 40 years.
Considerations
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For a borrower to qualify for an FHA loan, the home must meet higher quality requirements. A home inspection may be required in addition to the standard appraisal. Fannie Mae has guidelines as well, but an inspection is required only in the event of damage noted on the appraisal.
Misconceptions
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A Fannie Mae mortgage can be placed on any size debt; however, mortgages larger than $417,000 are considered jumbo mortgages, and those larger than $2 million are considered super-jumbo mortgages. Each designation involves different regulations and rate sheets. FHA loan limits are significantly lower and vary based upon geographic location.
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References
- Photo Credit Image by Fotolia.com, courtesy of Rui Vale de Sousa
