- The Washington Times - Friday, July 26, 2002

It takes a lot of money to buy a house. By the end of this year, home buyers will borrow nearly $1 trillion (actually, $989 billion), up from $873 billion in 2001, according to the Mortgage Bankers Association. Meanwhile, the total volume of mortgages, which includes refinancings, is projected to decrease 16 percent from last year's record total of $2 trillion to $1.7 trillion in 2002.

The estimated number of homes to change hands this year stands at 6.5 million, according to the National Association of Realtors up 5 percent from 2001. That's a lot of houses and a ton of money literally. All that money changing hands averages to a house price of about $152,000.

So where does all that cash come from? Most would think, "Well, the banks, where else?"

Actually, the holders of the most money don't even lend out money to consumers. Two of the largest providers of funds for real estate loans are Fannie Mae (www.fanniemae.com) and the Federal Home Mortgage Corp., commonly called Freddie Mac (www.freddiemac.com). These two companies were chartered by the federal government many years ago. They operate now as independent companies traded on the stock market.

They provide thousands of lenders across the country with money to lend to buyers. Neither of them lends money directly to borrowers. Instead, they buy loans from lenders across the country and then sell those loans as securities on Wall Street to investors such as you and me. So when you're working with a lender, ask him what programs does he work with? Fannie Mae or Freddie Mac?

Another organization like the two above is Ginnie Mae, which is a government agency within the federal department of Housing and Urban Development. This organization was created by Congress to ensure adequate funds exclusively for government loans insured by the Federal Housing Administration (FHA) and guaranteed by the Department of Veterans Affairs (VA) . You may have heard of an FHA or VA loan, but these loans are not funded by the government, they are merely insured by the government.

FHA and VA provide security for lenders. If a buyer defaults on the loan, the government agency will pay off the outstanding balance on the mortgage, take over the property and sell it at foreclosure.

On the street, you will come face to face with the business that will actually lend you money lenders. The best place to go for money is where they know you personally. It might be your bank, credit union or mortgage broker. Lenders range from major conglomerate banks to individual investors.

Banks are an obvious source of money. Basically, a bank is a financial organization founded by a group of investors who provide the initial funds to start loaning to consumers. As loans are made, "notes" are written. It is this paper that is sold to Fannie Mae and Freddie Mac.

The paper must meet certain criteria, or "conform" to a standard, thus they are called "conforming" loans, also known as conventional financing.

Generally, these loans cannot exceed $300,700, and the borrower must bring a predetermined amount of money to the table, such as 5 percent of the purchase price or more. Lower down-payment programs, such as FHA and VA, do not meet this criteria, allowing zero percent to 3 percent down payments. Thus, they are nonconventional.

Check with your bank to see what type of programs it offers for account holders (those with checking and savings accounts), but don't make a decision on giving your business to the bank right away. Shop around with other mortgage providers, as well.

If you belong to a credit union, find out if it offers mortgages for real estate purchases.

Finally, there are mortgage brokers who can shop your mortgage needs around to several companies that have dozens, if not hundreds, of programs to fit your particular situation.

M. Anthony Carr, director of communications for the Northern Virginia Association of Realtors, has written about real estate for more than 12 years. Reach him by e-mail ([email protected]).

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