Most applicants are exposed to a variety of terms describing mortgages that are available on the market. The most popular include, Fannie Mae, Freddie Mac, and FHA.

FHA was created by the Federal Government to stimulate affordable housing financing for qualified borrowers. FHA insures 100% of the loan eliminating the lender's risk. The borrower pays an upfront insurance premium which is approximately 1.5% of the loan amount. This money is included in the loan amount. The borrower also pays a monthly premium of .5% of the loan amount divided by 12 months. FHA requires downpayment of 3%. This money can be can be given to you as a gift. No reserves are required. Closing costs can be paid by seller and/or partially be written into the loan via a higher rate.

Borrowers must provide proof of sufficient income to carry mortgage obligation however FHA allows more relaxed income guidelines allowing you to get more home than if you went with a conventional product.

Additionally, FHA allows more relaxed credit guidelines; bankruptcy that was discharged at least 2 years ago, the use of alternative credit (utilities, cable tv, auto or medical insurance premiums, child care, school tuition, furniture or appliance store accounts) in lieu of tradional credit.

FHA interest rates are extremely competitive with conventional rates.

Fannie Mae loans are conventional loans made at the risk of the lender without benefit of any government guarantee or government insurance. A conventional loan with an LTV, loan to value ratio, of greater than 80% requires primary mortgage insurance, which is paid monthly at a slightly higher rate than FHA. The borrower must have 5% of his own funds for the downpayment and 2 to 6 months reserves on deposit(meaning you have 2-6 months worth of mortgage payments in savings). Closing costs are paid by the borrower.

Requirements of a conventional loan applicant include excellent credit (no use of alternative credit), job stability with sufficient income, a sizable downpayment, and low debt to income ratios.