Did you apply for a 30-year fixed-rate mortgage and "just barely miss" getting approved? Conventional financing using Fannie Mae and Freddie Mac guidelines is mostly bread-and-butter. A 30-year fixed is a 30-year fixed, right? Wrong. If you didn't get approved using a Freddie Mac lender you need to try one more time with a Fannie lender. And vice versa.

Most people (in fact, many loan officers) don't know that, while conventional financing from Fannie Mae and Freddie Mac are identical in many ways, there are times when they're not. And the differences can mean getting approved or not getting approved.

Fannie Mae, (FNMA) is the nickname for the Federal National Mortgage Association and Freddie Mac (FHLMC) is short for the Federal Home Loan Mortgage Corporation and both provide mostly the same function; to provide liquidity in the mortgage market.

"Liquidity" means having some cash lying around for banks to lend money. If a mortgage company makes a bunch of loans it soon runs out of money. When that happens they can go borrow more or sell the loans they have. If the loans to sell fall under guidelines issued by Fannie Mae or Freddie Mac, then those loans can be sold to other lenders or to Fannie and Freddie. Voila! Instant cash. Let's go make some more loans!

Common guidelines these entities share are loan limits (currently $333,700), downpayment requirements, appraisal issues and a host of others. To most loan officers that means they're the same. But they're not. Both can have their own little nuances or special requirements the other may not have.

First and foremost, both Fannie and Freddie require that you have good credit. At least on their top of the line fixed-rate programs. They'll also ask that your debt load be within a certain range or they might also ask for other things such as a stable employment history and cash reserves available after closing.

Most loans submitted nowadays go through an AUS, or Automated Underwriting System. These applications electronically transfer your information to a lender that uses either a Fannie Mae or Freddie Mac approval system. The loan decision will be returned in a matter of minutes with either a "Yes, eligible" or "Not Eligible" or sometimes "Caution" or other verbiage. Because too many loan officers think one 30-year loan is the same as the next, sometimes a loan that "just misses" an approval is either provided a higher, alternative rate or the loan is simply declined. Big mistake.

If you get declined for a conventional loan, ask your loan officer which guidelines were used to evaluate your application. If they don't know (which is likely) ask them to find out. If they tell you it was a Freddie loan, ask them to submit it to a Fannie lender. If it was Fannie, then re-submit with Freddie.

I've seen many a loan that got declined using one standard but got an approval with another. The differences between Fannie and Freddie are sometimes imperceptible, but they exist nonetheless. They're hard to pinpoint as well. It's never one thing such as $100 more in the bank or a debt ratio going a little higher; it's a combination of several items that count. Don't short-change yourself. Ask your loan officer to submit you under both guidelines.

Published: August 27, 2004

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, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.