One of the important steps of getting the best possible mortgage consists of finding the lender offering the best deal. The source of funding for your loan can also affect your rate and payments as well as the amount of your down payment and closing costs.
If you have at least 3% of the loan amount to use as a down payment, you may consider the most common type of loan, a conventional loan. These loans consist of conforming loans, which are secured by government sponsored entities (GSE) such as Fannie Mae and Freddie Mac, and jumbo loans, which are funded by private investors for loan amounts higher than the limits set by the GSE’s.
Two agencies fund conforming loans are funded by Fannie Mae (FNMA) and Freddie Mac (FHLMC). These companies do not lend money directly to you, but work with lenders across the country to offer mortgage loans to meet your needs. As a secondary market for mortgage loans, they purchase mortgages from lenders and package them into securities that can be sold to investors.
A jumbo loan is a non-conforming loan. Unlike a conforming loan, the amount of the loan exceeds the general limit set by the FNMA. Although that limit may change annually, it is usually set at around $300,000. Conforming loans also have lower rates of interest, since lenders assign them as low risk loans.
