What (or who) are Fannie Mae and Freddie Mac? These are just cute names for the two biggest companies in the secondary mortgage market. The government-sponsored companies buy mortgages from banks and other mortgage-lending institutions and in turn, sell mortgages to investors. They guarantee the repayment of the principal and interest on the loans they sell -- so if the borrower doesn't pay up, they foot the bill for investors.

To minimize their liability, Fannie Mae and Freddie Mac set strict guidelines for loans they will purchase. What does all this have to do with you? Because these companies are two of the biggest loan buyers, your loan company may want to sell to these companies, which means you need to keep their rules in mind. For them to buy a loan, it must:

• Be appraised with the Uniform Residential Appraisal Report
  
• Be under the price limits set yearly by Fannie Mae: The 2007 limit is $417,000 for single family homes or $208,500 for second mortgages. (It varies in pricey areas and for two, three or four family homes -- check the Fannie Mae Web site.)

Ginnie Mae, which buys only VA and FHA loans, also requires the Uniform Residential Appraisal Report, and won't lend more than the limits set by HUD and Fannie Mae.

In addition to being big players in the secondary mortgage market, Freddie Mac and Fannie Mae offer several nontraditional loans.

• MyCommunityMortgage offers up to 100 percent financing for buyers that are at or below the HUD median income level. There is no minimum contribution from the buyer, and funds for the down payment and closing costs can come from gifts, grants or loans. Buyers with past credit problems or nontraditional income sources (such as renter income) are also considered.
  
• Community Seconds. Low- and moderate-income buyers can receive a subsidized second mortgage to help fund the down payment and closing costs. The second mortgage can be subsidized by a state, county or local housing agency. Payment on the second mortgage is often deferred and has a very low interest rate (or no interest rate at all).
  
• Community Renovation offers loans for homes in communities that need revitalization. The loan can be for up to 97 percent of the value after renovations, and up to 50 percent of the loan can be used to renovate the home. A 3 percent down payment ($500 minimum contribution) from the buyer is required.
  
• Flexible 97 and 100 mortgages feature up to 100 percent financing, and there are no income requirements. If buyers pay a down payment, the funds can come from gifts, loans or grants.
  
• HomeStyle Construction to Permanent loans finance up to 95 percent of the purchase of land and the construction of a new home into one loan.
  
• Find a Fannie Mae Lender.

Freddie Mac Mortgage Options

• Home Possible Mortgages give buyers between 97 percent and 105 percent of the total loan value, and allow funding for closing costs to come from a gift, loan, grant, second lien, or contribution from the seller. These loans have top income limits, so check with your lender to see if you are eligible.
  
• Affordable Merit Rate Mortgages give borrowers with past credit problems a 1 percent interest rate reduction if they pay their mortgage on time for 24 consecutive months.
  
• The Alt 97 Mortgage is for buyers with lots of positive credit but not a lot of savings. This mortgage gives 97 percent financing and allows buyers to pay the 3 percent down payment with a gift, loan or money from the seller and may require less money to close than an FHA loan.
  
• The Freddie Mac 100 Mortgage offers buyers with excellent credit 100 percent financing and no down payment. The buyer only pays 3 percent of the value or $500 dollars(whichever is less) but requires a high percentage of mortgage insurance.

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