A number of different financially oriented businesses offer mortgages, including banks, credit unions, and mortgage companies. Even insurance companies will sometimes have a mortgage lending program division. The mortgage loan market is competitive and lenders compete for qualified lenders to lend money to. They will advertise, or make deals with various community organizations to make themselves and their loan products known.
People interested in a mortgage can apply directly to individual loan companies, or, alternatively, they can use the services of a mortgage broker. A mortgage broker is someone who can shop your loan needs around to multiple lenders and get back to you with the best deals for your individual needs. Often, using a mortgage broker can save you a lot of money over the life of the loan, because the loan they arrange for you offers better terms compared to loans you could get on your own. Be aware, however, that some brokers are better than others. In particular, look out for brokers who aren't independent agents, or who have a vested interest in pushing loan products for a particular company. Mortgage brokers are paid a commission from the mortgage company that provides the home loan. So, the broker may favor a company that offers him or her the largest commission, not the company that has the best loan for you.
Mortgage loans are usually underwritten by large commercial businesses (banks, insurance companies, large financial companies). Financial companies of this sort are for-profit entities who are motivated to make as much money as possible; not to do charity work. Recognizing that access to low cost loans is important if large numbers of people are to have mortgages, a number of government programs exist to lower the risk for these private lenders to provide mortgages to more people and at lower interest rates then would otherwise be prudent. Some of these programs are described below:
- Fannie Mae. Fannie Mae (FNMA) is an abbreviation for Federal National Mortgage Association. It is a federally chartered, stockholder owned corporation that buys mortgages on the secondary market. That means that Fannie Mae does not lend money directly but buys mortgages from other companies. It was initially created by the federal government to buy FHA-secured loans thereby making more federal funds available to secure new loans. Although Fannie Mae started out as government-owned corporation, it is now privately owned and is not supported by taxes. The Department of Housing and Urban Development (HUD), however, still maintains regulatory control of Fannie Mae. By buying mortgages from primary lenders and allowing them to reinvest their funds in new loans, Fannie Mae aims to help low and middle income families realize the dream of homeownership.
- Freddie Mac. Freddie Mac (FHLMC) is an acronym for the Federal Home Loan Mortgage Corporation. It was created by the government in the 70s to help stabilize the home mortgage market, but it is now a stockholder-owned corporation. Freddie Mac, like Fannie Mae, does not lend money directly to home buyers. It buys mortgages on the secondary market and packages them as securities (e.g., investment instruments which may be bought and sold through financial exchanges in the manner of stocks and bonds). Freddie Mac has the same charter and mission as Fannie Mae but achieves its goals differently. By purchasing mortgages, Freddie Mac helps to keep mortgage capital in the market.
- Ginnie Mae. Ginnie Mae (GNMA) is also an abbreviation. The full name is the Government National Mortgage Association. Ginnie Mae is a part of Fannie Mae but remains a government agency. It, like Fannie Mae, does not issue mortgages. Rather, Ginnie Mae is a guarantee organization that ensures the payment on mortgage-backed securities (MBS) issued by the government. A MBS is group of mortgages that secure debt certificates issued to investors. A percentage of the payments received for the mortgage are channeled to the investor. Ginnie Mae ensures that these "pass-through" payments are made to the investor even if the mortgage payment is not made.
- FHA/VA. The Federal Housing Authority (FHA) and the Veterans Administration (VA) both offer mortgage guarantee programs. Neither agency lends directly to home buyers. They both work in conjunction with commercial lenders and guarantee that the lender will be paid all or a portion of the loan in the event that the mortgage-holder defaults. Because these loans are secured, credit-challenged home buyers stand a better chance of getting approved and the home buyer can get a home with less money down. These secured loans enable many people to buy a home who otherwise would be declined. The downside of FHA or VA secured loans is that the interest rate will generally be higher than a conventional mortgage. However, a mortgage with a higher than average rate is better than not being able to get a mortgage at all. Additionally, a homeowner can refinance after s/he has established a history of on-time payments. FHA or VA secured loans are available at most commercial lenders but there are some stipulations. FHA loans require a down payment of up to 3%. VA loans are available only to military veterans and their surviving, unmarried spouses.