Is Fannie Mae an FHA Mortgage?

FHA's History and Duties

Congress created FHA in 1934 as a reaction to the Great Depression. It believed encouraging home ownership in the United States was one way to climb out of the economic hardships the country was experiencing. In 1965, Congress placed FHA under the direct control of HUD. Today, FHA provides mortgage loans for homeowners and home buyers, with down payments as small as 3.5 percent. FHA charges its borrowers two types of mortgage insurance on each loan: Up-Front Mortgage Insurance Premiums (UFMIP) and Monthly Insurance Premiums (MIP). FHA uses these insurance premiums to reimburse lenders who underwrite approved mortgages using FHA's guidelines and experience losses due to foreclosure of an FHA insured loan.

The Federal National Mortgage Association (FNMA, also commonly called Fannie Mae) is the world's largest mortgage investor. Fannie Mae owns trillions of dollars of mortgage loans purchased from approved lenders and banks. Fannie Mae, along with its sister company Freddie Mac, creates the guidelines for all conventional mortgages. Fannie Mae helps set the national conventional mortgage loan limits, which are reviewed annually. Fannie Mae began in 1938 and was changed to a semi-private company in 1968 by Congress, issuing private party stock and allowing Americans to invest. In 2008, the government placed Fannie Mae under the control of the FHFA to prevent Fannie Mae's collapse.

FHA's primary source of business is insuring primary residence mortgage loans. FHA only finances primary residences for private parties. FHA provides many different loan programs including purchase money loans, rate and term refinance loans, cash-out refinances and streamlined refinance mortgages. While most housing types are eligible for FHA mortgages, FHA will not finance vacation homes or investment properties for most borrowers. FHA requires mortgage insurance on all of its loans regardless of the loan to value.

Fannie Mae offers many more borrowing opportunities than FHA. Fannie Mae finances primary residences, vacation homes and investment properties. Any loan approved through Fannie Mae whose balance exceeds 80 percent of the home's value requires mortgage insurance from a private mortgage insurance provider. Homeowners may remove the mortgage insurance without refinancing when the home's equity equals 20 percent or more. Fannie Mae's minimum down payment is 5 percent, compared to FHA's minimum down payment of 3.5 percent. Fannie Mae enforces stricter approval guidelines than FHA. For example, Fannie Mae requires homeowners with a discharged chapter 7 bankruptcy wait four years after the discharge before allowing loan approval; FHA only requires two years.