The power of leverage to purchase a real estate property lies in the capacity of the potential borrower.
Typically, the borrowers fall in four categories of buyers of residential properties:
- Principal Residence
- Second Homes
- Investment Property
- Cash-out borrowers
Lenders qualify potential borrows based on capacity of the borrower to payback loan over long period of time for the associated property having qualifying market value as collateral on which mortgage for the loan is placed.
It is the large social objective of the government that home ownership and expansion of investment dwelling units is encouraged to meet ever growing demand to improve the standard and quality of life of people. The flow of money is regulated through banks and investment companies from primary
consumer market to secondary market that purchases loans and circulate money back into the
Two big buyers of loan papers from banks are the two government sponsored enterprises (GSE) based
on their underwriting guidelines:
- Fannie Mae or Federal National Mortgage Association. (FNMA), and
- Freddie Mac or Federal Home Loan Mortgage Corporation (FHLMC).
Fannie Mae buys loan papers from larger commercial banks and lenders, whereas Freddie Mac often buys loans from smaller banks. Together, they control about 70% of housing financial
industry in the nation and significantly stabilize the housing market.
In addition to above loans, there are government insured/guaranteed loans available:
- FHA Loans: These loans are 3.5% down government insured. There is insurance cost
upfront on buyer thrown into the loan for the buyer, and recurring insurance premium till
principal balance drops to 78%.
- USDA Loan: These loans are made available in specified rural areas for low-income
- VA Loans: These loans are for the active members of U.S. military and veterans and their
families. There is no down payment. There are funding fees on closing rolled into loan.
These loans are guaranteed 100% by U.S. government.
The loan products and their underwriting guidelines are regulated by law. Depending upon the type of borrower you are, it is best that you engage services of an established and experienced loan company, define what you are looking for, and how well you can qualify for the loan to suit your purpose. Conventional loans are available from as low as 3% down.
The range of loans available conforming to Fannie Mae standards may be seen here:
It is very important that you make no misrepresentation of yourself and objective of the loan you plan to apply for. Your assertions and signature on the loan application are always under penalty of perjury