Fannie Mae Home Loan Requirements: A Detailed Guide

Fannie Mae, the Federal National Mortgage Association (FNMA), is a government-sponsored enterprise (GSE) chartered by Congress to stimulate homeownership and provide liquidity to the mortgage market. Established in 1938 during the Great Depression as part of the New Deal, Fannie Mae helps low- to moderate-income borrowers obtain financing for a home.

Buying a home is an exciting milestone in life. However, navigating the home loan process can be daunting for first-time homebuyers Fannie Mae has specific requirements borrowers must meet to qualify for a mortgage loan Understanding these criteria in advance helps borrowers determine if they are eligible and better prepare for the application process. In this comprehensive guide, we will examine Fannie Mae’s key home loan requirements.

Overview of Fannie Mae

Fannie Mae, also known as the Federal National Mortgage Association is a government-sponsored enterprise that expands access to mortgage credit across the U.S. It does not directly lend money to homebuyers. Instead Fannie Mae works with lenders to provide funding for mortgage loans by purchasing those loans and packaging them into mortgage-backed securities that are then sold to investors. This gives lenders more capital to issue new loans.

Fannie Mae sets guidelines for the loans it is willing to buy, which influences the types of loans lenders will approve borrowers for. Meeting Fannie Mae’s eligibility criteria is essential to qualifying for most conventional loans. Their requirements focus on credit history, income, assets, property type, loan type, and loan-to-value ratios.

Loan Types

Fannie Mae purchases a variety of loan types, each with distinct policies. The most common are:

Conforming Loans – Also called conventional loans, these meet Fannie Mae’s size limits based on the local area’s median home price. For 2023, the baseline conforming loan limit is $726,200 but can be higher in pricier markets.
Fixed-Rate Mortgages (FRMs) – These have an interest rate that stays the same over the full loan term, usually 15 or 30 years.
Adjustable-Rate Mortgages (ARMs) – Interest rates fluctuate based on market conditions. ARMs often start with a fixed rate for 3-10 years then adjust annually.
Cash-Out Refinances – Borrowers take equity out of the home in cash.
Rate-and-Term Refinances – Also called limited cash-out refinances, these let borrowers refinance for a lower rate without taking significant equity out.

Loan eligibility guidelines can vary based on the loan purpose and type.

Borrower Eligibility

To qualify for a Fannie Mae loan, borrowers must meet certain criteria:

Credit Score – Minimum scores range between 620-700 depending on the loan type. Many lenders require higher scores.
Down Payment – Conventional loans allow down payments as low as 3% on primary residences and second homes. Investment properties have a 15-25% down payment requirement.
Debt-to-Income Ratio (DTI) – Total monthly debt payments, including the new mortgage, cannot exceed 45% of gross monthly income in most cases.
Reserves – Lenders want to see borrowers have 2-12 months of mortgage payments available in assets after closing. Reserves requirements increase for higher DTI ratios or lower credit scores.
Homebuyer Education – First-time homebuyers must complete an approved pre-purchase education course to get HomeReady loans with down payments under 3%.

Borrowers with past derogatory credit events like foreclosures, short sales, and bankruptcies must meet seasoning timeline requirements before applying for a new mortgage. Non-U.S. citizen borrowers may also face restrictions depending on their visa type.

Property and Occupancy Requirements

The property type and occupancy status also impact eligibility:

Property Types – Single-family homes, condos, co-ops, and manufactured homes often have different guidelines. For instance, condos and co-ops must undergo project approval.
Primary Residence – Has more flexible requirements than non-owner-occupied properties.
Second Homes – Borrowers can have only one other financed second home.
Investment Properties – Require larger down payments and better credit scores. Gift funds generally cannot be used.

Review Fannie Mae’s condo and PUD project standards before purchasing a unit in a development. Certain projects may not be eligible for loans or have lower maximum loan-to-value limits.

Loan-to-Value (LTV) and Combined LTV (CLTV) Limits

The LTV ratio compares the loan amount to the home’s appraised value. The CLTV adds other lien amounts to determine how leveraged the property is.

Fannie Mae sets maximum LTVs and CLTVs by occupancy type:

Primary residences: Up to 97% LTV, 105% CLTV
Second homes: Up to 90% LTV, 95% CLTV
Investment properties: Up to 85% LTV, 85% CLTV

Higher credit scores and lower DTIs are usually required for LTVs exceeding 80%.

Alternate Income Documentation

In addition to standard income documentation like W-2s and paystubs, Fannie Mae allows alternate means of validation:

12 months of bank statements to document self-employment or social security/retirement/disability income
10-12 months of on-time rent payments via canceled checks or reporting on credit to validate rental income
Cryptocurrency income with a written attestation of history

Using these options can help borrowers who don’t have traditional income documents qualify.

Summary

The key to successfully financing a home with a Fannie Mae loan is understanding their minimum requirements for credit profile, income, assets, property types, loan types, and down payments. Consulting an experienced loan officer early in the process can help potential homebuyers evaluate if they meet the core eligibility criteria before getting too far along. With proper preparation and documentation, Fannie Mae’s conventional loan programs make homeownership attainable for many buyers.

History of Fannie Mae Stock

Fannie Mae has been publicly traded since 1968. Until 2010, it traded on the New York Stock Exchange (NYSE). Following the Great Recession and its impact on the housing market, Fannie Mae was forced to delist its shares for failure to meet the minimum closing price requirement mandated by the NYSE. Fannie Mae now trades over the counter.

In 2008, Fannie Mae and Freddie Mac went under the conservatorship of the Federal Housing Finance Agency (FHFA).In September 2019, the Treasury and FHFA allowed Fannie Mae and Freddie Mac to keep their earnings to shore up their capital reserves as a step toward transitioning the two out of conservatorship.

Loan Modifications and Fannie Mae HomePath

Loan modifications change the conditions of an existing mortgage to help borrowers avoid default, ending up in foreclosure, and ultimately losing their homes. Modifications can include a lower interest rate and extending the loan term, which would lower monthly payments.

When foreclosures arise on mortgages in which Fannie Mae is the owner or investor, or when properties are acquired through deeds instead of foreclosure or forfeiture, Fannie Mae attempts to sell the properties promptly to minimize potential impacts on the community. HomePath by Fannie Mae is where home buyers and investors can search for and make offers on these properties. The HomePath program is a way for creditworthy homebuyers to finance new homes.

In some cases, special financing may be available. These include closing cost assistance, 3% down payments, and improvement costs bundled into the loan.HomePath.com advertises properties owned by Fannie Mae, including single-family homes, townhouses, and condominiums. Fannie Mae uses local real estate professionals to prepare, maintain, and list the properties for sale.

Fannie Mae Home Ready Review – 3% Down Home Buyer Loan

FAQ

Who qualifies for Fannie Mae loans?

Fannie Mae Loan Requirements With loans from either Fannie Mae or its competitor Freddie Mac, you’ll need a qualifying FICO^® Score of at least 620. If you’re an individual borrower, your qualifying score is the median between the three major credit bureaus – Experian™, Equifax^® and TransUnion^®.

How much of a down payment do I need for a Fannie Mae loan?

Down payments as low as 3%. Flexible funding for down payments or closing costs, which allows funds from multiple sources, including gifts, grants from lenders or other eligible entities, and Community Seconds^®. No minimum personal funds are required (restrictions apply).

What credit score do you need to buy a house with Fannie Mae?

Because Fannie Mae has a minimum qualifying credit score of 620, this should help more clients qualify together on the loan, allowing for the use of all incomes to determine what they can afford. This also helps clients who are still working on their credit but may be applying with a co-signer.

Is Fannie Mae better than FHA?

FHA loans offer lower down payment requirements, which could be a deciding factor for first-time homebuyers or those with limited savings. On the other hand, while Fannie Mae loans often require a higher down payment, their flexible options might still make them an attractive choice for certain borrowers.

What is Fannie Mae’s eligibility matrix?

The Eligibility Matrix provides the comprehensive LTV, CLTV, and HCLTV ratio requirements for conventional first mortgages eligible for delivery to Fannie Mae. The Eligibility Matrix also includes credit score, minimum reserve requirements (in months), and maximum debt-to-income ratio requirements for manually underwritten loans.

Can I get a mortgage from Fannie Mae?

Fannie Mae, also known as Federal National Mortgage Association (FNMA), does not originate loans. Instead, banks and non-bank lenders like Rocket Mortgage® are responsible for collecting a client’s application, underwriting the loan, and getting it to the closing table. Fannie Mae purchases these loans from the lenders and securitizes them for resale to investors.

What are Fannie Mae rules?

Lenders must follow Fannie Mae rules when underwriting conventional loans, which aren’t backed by the federal government. Before Fannie Mae’s creation, home loans had to be repaid quickly, sometimes in as few as five years, with large balloon payments due at the end of the term.

What are Fannie Mae loan limits?

Loan limits. The Federal Housing Finance Agency (FHFA) sets conforming loan limits each year based on changes in average home prices. As of 2023, the maximum conforming Fannie Mae loan limit is $726,200 for a single-family home in most parts of the country.