Financing Your Condo, Co-op, or Townhouse the Right Way
Now to the good part: That's why you bought the book, right? This chapter identifies the various loan programs available for condos, co-ops, and townhouses, and it discusses how to evaluate them and pick the right loan for you.
If you pay any attention to all the mortgage commercials on television, the Web, and the radio, you'd think there are thousands of loan programs. But the fact is, mortgage loans are exactly the same from one lender to the next. That was done on purpose when the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Corporation (Freddie Mac) were formed. The only real difference is how the various mortgage companies market them.
Fannie and Freddie are governmental agencies. They were formed by the U.S. government for the sole purpose of fostering homeownership. The way they foster homeownership is to buy mortgages from lenders so lenders can issue more mortgages. If you stop and think about it, it all makes sense.
If a lender has a million dollars in the bank and wants to lend money for homes, then after it lends that million, how will it continue to lend money on new homes? Easy: by selling the loans it already made.
But we're not talking about just any type of loan. It must conform to lending guidelines prescribed by Fannie and Freddie. If the loan meets the lending standards, then it can be bought and sold — sometimes over and over again, and sometimes to other lenders. This buying and selling activity is known as the “secondary” mortgage market.
The Federal Housing Administration, or FHA, also has lending guidelines, as does the Department of Veterans Affairs for VA loans. These loans, too, can be bought and sold.
So what does that mean when it comes to choosing among various loan packages? It means that behind all the marketing, behind the different names for loans, they're really all the same, just dressed up in different clothes.
Basically, there are two types of mortgages: fixed and adjustable.