It takes a lot of money to buy a house. By the end of this year, homebuyers will borrower nearly $1 trillion (actual, $989 billion), up from $873 billion in 2001, according to the Mortgage Bankers Association. Meanwhile, the total volume of mortgages, which includes refinancings, is projected to decrease 16 percent from last year’s record total of $ 2 trillion to $1.7 trillion in 2002.

The estimated number of homes to change hands this year stands at 6.5 million, according to the National Association of Realtors – up 5 percent from 2001. That’s a lot of houses and a ton of money – literally. All that money changing hands, interprets into an average price of around $152,000. So where does all that cash come from? Most would think, “Well, the banks, where else?”

Actually, the holders of most the money don’t even lend out money to consumers. Two of the largest providers of funds for real estate loans are Fannie Mae and Freddie Mac. These two companies were chartered by the federal government many years ago, but operate as independent companies traded on the stock market.

They provide thousands of lenders across the country with money to lend out to buyers. Neither of them lend money directly to borrowers. Instead, they purchase loans from lenders across the country and then sell those loans as securities on Wall Street to investors like you and me. So when you’re working with a lender, ask him what programs does he work with? Fannie Mae or Freddie Mac?

Another organization, like the two above is Ginnie Mae, which is a government agency within the U.S. Housing and Urban Development. This organization was created by Congress to ensure adequate funds exclusively for government loans insured by the Federal Housing Administration (FHA) and guaranteed by the Department of Veterans Affairs (VA) and Veterans Administration. You may have heard of an FHA or VA loan, but these loans are not funded by the government, they are just insured by the government.

FHA and VA provide security for the lenders that if a buyer defaults on the loan, the government agency will pay off the outstanding balance on the mortgage, take over the property and sell it at foreclosure.

On the street, you will come face to face from the business that will actually lend you money – the lender. The best place to go for money is where they know you personally. It might be your bank, credit union or mortgage broker. Lenders range from major conglomerate banks to individual investors.

Banks are an obvious source of purchasing money. Basically, a bank is a financial organization founded by a group of investors, who provide the initial funds to start loaning to consumers. As loans are made, “notes” are written. It is this paper that is sold to Fannie Mae and Freddie Mac. The paper must meet certain criteria, or “conform” to a standard, thus they are called “conforming” loans, also known as conventional financing.

Generally, these loans cannot exceed $300,700 and the borrower must bring a pre-determined amount of money to the table, such as 5 percent of the purchase price or more. The lower down payment programs, such as FHA and VA do not meet this criteria, allowing 0 to 3 percent down payments. Thus, they are non-conventional.

Check with your bank to see what type of programs they offer for account holders (those with checking and savings accounts). But don’t make a decision on giving your business to them right away. Shop around with other mortgage providers as well.

If you belong to a credit union, find out if it offers mortgages for real estate purchases. Finally, there are mortgage brokers who can shop your mortgage needs around to several companies that have dozens, if not hundreds of programs to fit your particular situation.

Published: August 2, 2002

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Mr. Carr is an award-winning real estate broker in Northern Virginia and authored "Real Estate Investing Made Simple: a commonsense approach to building wealth." He also contributed to Donald Trump’s book, "The Best Real Estate Advice I Ever Received," and is an active trainer and coach of top producers in the Washington DC market. As a sought-after expert on real estate, Mr. Carr has been featured on CNN, various broadcast outlets and was the former real estate editor for The Washington Times. He accepts questions at his blog www.RealEstateOlogy.org.