What to Know about Fannie Mae and Freddie Mac Home Loans
April 27, 2026
When you start looking for a home, you will encounter Fannie and Freddie loan options in addition to FHA loan options, and getting familiar with these options is important, even if you know you want an FHA mortgage.
Why? Making the most informed choice about your home loan options is important.
Congress established Fannie Mae in 1938 as part of the New Deal to purchase loans from private lenders. In 1968, the government converted Fannie Mae into a shareholder-owned, government-sponsored enterprise (GSE) to move its debt off the federal budget.
Congress created Freddie Mac in 1970. This was done through the Emergency Home Finance Act, which established a competitor for Fannie Mae and expanded the secondary mortgage market.
While Fannie Mae originally focused on FHA and VA loans, Freddie Mac was designed to purchase conventional mortgages from thrifts and savings and loan associations.
Both operate by purchasing mortgages from lenders and selling the loans to investors.
What are the origins and primary functions of Fannie Mae?
The Federal National Mortgage Association began in 1938. It provided home loan funding during the Great Depression. The entity primarily buys loans from large national banks and high-volume financial institutions. This supports the largest lenders in the country.
How does Freddie Mac differ in its focus?
The Federal Home Loan Mortgage Corporation began in 1970 to provide competition. It focuses on buying loans from smaller institutions. These include community banks and credit unions.
How do these entities evaluate mortgage eligibility?
Both use proprietary software to assess risk. Fannie Mae uses Desktop Underwriter. Freddie Mac uses Loan Product Advisor. Fannie Mae may accept higher debt ratios than Freddie Mac. Freddie Mac often offers different terms to people with unique income sources or self-employment histories, helping those with "side hustles" and multiple gig economy jobs.
What programs exist for borrowers with limited down payment funds?
Fannie Mae offers HomeReady and requires a 3% down payment. It allows lenders to consider income from non-occupant co-borrowers. Freddie Mac offers Home Possible, which requires a 3% down payment. This program provides flexibility for people with limited credit history.
Do Fannie and Freddie handle FHA products?
Fannie Mae and Freddie Mac handle conventional loans. They do not buy FHA products. The FHA sets its own standards. These may be more lenient than the conforming standards of Fannie or Freddie.
Can people apply for these mortgages directly through the government?
You cannot apply for a Fannie Mae or Freddie Mac mortgage directly with the agency. You must use a participating lender. Fannie Mae, Freddie Mac, and FHA mortgages are all offered via participating lenders rather than directly by the Department of Defense or any other government agency.
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