For buyers looking to finance real estate with a loan, it’s important for them to familiarize themselves with industry jargon related to mortgage lenders and government organizations in order to understand all their available options. Whether borrowers are looking to purchase residential, commercial, or mixed-use properties, buyers will find benefits with organizations like HUD, the FHA, Fannie Mae, Freddie Mac, and Ginnie Mae. While learning these terms may be cumbersome, Hunt Mortgage Group shares how these organizations operate and how they differ to best help you locate and secure a commercial real estate loan that fits best within your financial picture.
Department of Housing and Urban Development (HUD)
The US Department of Housing and Urban Development (HUD) is part of the presidential cabinet, which aims to strengthen the housing market and keep it inclusive for all U.S. citizens. HUD focuses on keeping housing and rental units affordable. More importantly, this department aims to eliminate discrimination so that more people have an adequate place to live.
As part of HUD, The Federal Housing Administration (FHA) originates specialized loans to increase home ownership. These loans allow for smaller down payments compared to traditional loans. These loans also show more leinceny when it comes to meeting credit requirements. FHA loans sit in the residential sector, but it’s still necessary to learn more about them to understand how organizations like Ginnie Mae functions.
As a government-owned corporation, Ginnie Mae offers insured bonds guaranteed by the U.S. government. Furthermore, Ginnie Mae specializes in loans set up through the FHA or the VA (Veterans Benefits Administration). Ginnie Mae bundles a group of FHA mortgages, sells them as a fully insured bond, and then makes its money through various fees. Keep in mind that Ginnie Mae does not actually own the bond. Generally speaking, Ginnie Mae’s bonds offer more safety compared to products offered by Fannie Mae or Freddie Mac, which often get included in mutual funds. One final aspect that borrowers must keep in mind is that the safety offered by Ginnie Mae comes at a price. With increased safety, comes less opportunity for growth.
Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac are government-sponsored enterprises (GSE). The United States government, as well as private investors, own and operate these organizations. In other words, these GSE are publicly traded and owned by shareholders.
Both Fannie and Freddie buy mortgages initially originated (application, negotiation, and agreement between lender and borrower) by banks and mortgage lenders like Hunt Mortgage Group. They provide mortgage originators the ability to free up capital and thereby offer more loans. By selling a mortgage to Fannie or Freddie, mortgage originators can then use that capital to offer another borrower a loan.
Fannie and Freddie make money by turning these mortgages into securities that borrowers can buy and sell on Wall Street. Without Fannie Mae and Freddie Mac, fewer loans become available, which drive up mortgage rates exponentially.
So what exactly is the difference between Fannie Mae and Freddie Mac? As it turns out, these two organizations have more similarities than differences. Both organizations essentially offer the same services; however, Fannie Mae is much larger than Freddie Mac in the total number of loans it services.
Which GSE Will You Choose?
Simply understanding these organizations can help investors discover and secure the best mortgages for a future purchase. Of course, investors should also align themselves with trusted real estate agents and lenders with a distinguished history of success. This experience alone allows these lending institutions wade through the many complications that can occur during the mortgage process. Do you have questions about these organizations? The experts at Hunt Mortgage Group are happy to answer any questions you might have. Contact us today!