Is a Fannie Mae Loan a Conventional Loan?

Fannie Mae is a government-sponsored enterprise (GSE) charged with the role of increasing access to mortgages. It does this through extending private mortgage loans. Since these loans are private and not made with federal money or with the assistance of the Federal Housing Administration (FHA), they are conventional loans. If an FHA guarantee is attached to the loan, it would then cease to be a conventional loan.

There are two major categories of mortgages: conventional and FHA secured. A conventional loan is any loan made by a private institution without a guarantee or insurance from a government agency. While Fannie Mae is a GSE, it is not a direct federal agency because it exists to make a private profit. The FHA, on the other hand, is a federal agency. Any time it issues a guarantee on a loan, that guarantee is backed by the full faith and credit of the U.S. Treasury.

Since Fannie Mae loans are conventional loans, they may have unique competitive advantages or disadvantages over FHA loans. Generally speaking, FHA loans tend to be more affordable and more accessible to low-income individuals. On the other hand, conventional loans may have higher limits and be more flexible to individual needs. Depending on which set of benefits you need, you may consider either option.

It is a misconception to believe the federal government issues any mortgages, either through the FHA or through Fannie Mae. Both organizations are related to the federal government, but neither issue direct government-sponsored mortgages. The FHA only issues guarantees. Fannie Mae does issue direct mortgages, but these are funded by private shareholders.

Fannie Mae loans are beneficial for a number of reasons. First, Fannie Mae is a very large mortgage lender, which often means it can issue more mortgages than smaller lending institutions. Second, because Fannie Mae is a GSE, it often can present savings to borrowers who choose a Fannie Mae loan over a small bank loan. Finally, even when Fannie Mae suffers financial problems, it is unlikely to declare bankruptcy or go insolvent because the government has a large stake in its success. As a result, it may be more stable than a small bank.

If you qualify for a mortgage and can afford the down payment without an FHA loan, it may be preferable to stick with a conventional loan, such as a Fannie Mae loan. However, if you do not have a down payment large enough to purchase a home or otherwise need a small amount of assistance, an FHA loan can present solutions.