Your Free Guide to Fannie Mae Mortgage Loans

Your Free Guide to Fannie Mae Mortgage Loans

What is Fannie Mae?

The Federal National Mortgage Association (FNMA), or Fannie Mae, as it is referred to in this guide and throughout the mortgage industry, is a federal government-backed program that makes mortgages more available and affordable for Americans.

While Fannie Mae is not a government agency, it is a government-sponsored enterprise (GSE) that was created by Congress after the Great Depression to help moderate- and low-income Americans get home loans. 

According to Fannie Mae, it is the largest funder of mortgages in the U.S. and enables more than 1 million home purchases and refinances for American homeowners each year.

How It Works

Unlike banks or other lenders, Fannie Mae is not a loan originator, meaning it is not a direct lender of funds for home purchases. Here is how the Fannie Mae loan process works

1. A prospective home buyer applies for a mortgage at a Fannie Mae approved lender. *See this list of Fannie Mae approved lenders on section “List of National Fannie Mae Lenders” of this guide.
2. If the borrower meets certain criteria, the mortgage is approved by the lender with favorable terms (also described under each loan type in the Fannie Mae Mortgage Loans Explained section of this guide) including a lower interest rate, lower down payment requirements and more flexibility for the borrower. Learn more about eligibility requirements and favorable terms for each type of Fannie Mae loan in the Fannie Mae Mortgage Loans Explained section.
3. Then, Fannie Mae buys the mortgage debt from the lender, so that the lender has more money that it can then lend to other borrowers
4. Fannie Mae packages it together with other similar mortgages and sells it to investors in what is called a mortgage backed security
5. Fannie Mae guarantees payment on the mortgages in the mortgage backed securities to investors

Mortgage Backed Securities

A mortgage-backed security is an investment that consists of a bundle of similar home loans bought from the banks or lenders who originated them. As borrowers pay their mortgage payments each month, lenders send this money, minus a servicing fee, to Fannie Mae. Fannie Mae then distributes the payments for all of the loans in mortgage-backed security among all of the investors who bought that mortgage-backed security.

Typically, large institutional investors — like insurance companies, pension funds and investment banks — buy mortgage-backed securities. 

Fannie Mae’s guarantee of the mortgage-backed security only protects the investors. If a borrower fails to pay mortgage payments, the home could be taken by Fannie Mae in foreclosure. Foreclosures are homes that have been seized by the lender because the homeowner defaulted on the mortgage loan.

If Fannie Mae buys your mortgage from the lender, it will not directly affect you unless you have trouble paying your mortgage later on or want to refinance. You will continue to send your payments each month to your lender. If you do eventually have difficulty paying your mortgage or are interested in refinancing, you will have additional options with a Fannie Mae mortgage that you would not have with a conventional mortgage.

Types of Fannie Mae Mortgage Loans

Along with giving mortgage lenders the ability to make more loans, the chief goals of Fannie Mae are to help more Americans qualify for a mortgage, while keeping defaults (non-payments) to a minimum. Oftentimes, the two biggest obstacles when it comes to getting approved for a mortgage when you are low-income are having a low credit score and not having enough money saved for a down payment. 

A credit score is a number between 300 and 850 that tells lenders how likely you are to repay your debts. A down payment is the amount of cash a home buyer needs to pay out of pocket when buying a home.

Fannie Mae offers several different types of mortgage loans to assist low- or moderate-income home buyers:

1. HomeReady mortgages – These offer lower down payments and expanded eligibility
2. 3% down mortgages – These offer lower down payments for first-time home buyers
3. HFA Preferred mortgages – These offer low down payments, down payment assistance, and closing cost assistance.

Each of these types of loans will be discussed in more detail in Fannie Mae Mortgage Loans Explained. 

For all Fannie Mae loan products, prospective homeowners are required to take a homeownership education course.

Fannie Mae Eligibility Requirements

In order to get a Fannie Mae loan, both you (the borrower) and the property you intend to buy need to meet certain eligibility requirements: 

• Credit score – At a minimum, the middle of your credit scores from the three credit bureaus, Experian, TransUnion and Equifax, needs to be at least 620, but if your debt-to-income ratio is high, you may need to have a minimum credit score of 720.
• Debt-to-income ratio – The debt-to-income ratio (DTI), or the amount of your monthly debt payments compared to your before-tax monthly income, should be a maximum of 45% but preferably 36% or less.
• Reserves – Reserves are the multiples of your mortgage payment amount that you have in bank accounts. Although you are not required to have reserves with a Fannie Mae loan, reserves of at least 2X your monthly mortgage payment will make it easier to get approved, depending on your DTI and credit score. If you have a high DTI, a higher credit score and/or more reserves and/or a bigger down payment might be needed to be approved.
  • See Fannie Mae Approval for more details on eligibility requirements.
• Down payment – Down payments must be at least 3%-5% of the purchase price. If your DTI is high, however, Fannie Mae might require as much as a 25% down payment and a higher credit score.
• Local limits – The property cannot cost more than the local limit. See the Loan Limit Table for more details.
• Unit size – The property must be between 1 and 4 housing units.

For more detailed information on eligibility requirements for each type of Fannie Mae mortgage loan, see Fannie Mae Mortgage Loans Explained.

Meanwhile, conventional non-conforming loans are done through regular lenders and are made to home buyers who do not meet the Fannie Mae eligibility requirements, usually because:

• The loan amount is too big (a jumbo mortgage), 
• The borrower’s credit score is lower than Fannie Mae requires (a subprime mortgage), or
• The property type is not allowed under a Fannie Mae loan.

Reasons to Consider Fannie Mae Mortgage Loans

Low Interest Rates

The interest rate is the percent of the loan amount that the lender charges a borrower for using its money. The higher the interest rate, the higher the monthly mortgage payment and the more the borrower has to pay over the life of the loan. 

When Fannie Mae buys a Fannie Mae loan (called a conforming loan) from a lender, the lender now has more money to lend to other borrowers. Lenders can make more loans available to consumers in general and by keeping up a steady supply of mortgages, interest rates can remain relatively low. 

Lower Down Payment

With each of Fannie Mae’s loan types, borrowers can qualify for a mortgage with as low as a 3% down payment. Fannie Mae loans reduce the amount of money home buyers need to have saved significantly so they can stop paying rent and start building equity as a homeowner. 

Some Fannie Mae loans give prospective home buyers grants to use toward a down payment or allow borrowers to fund a down payment with outside sources such as a gift from a relative or a grant from a non-profit or government agency. 

*See Fannie Mae Mortgage Loans Explained for a description of the different types of Fannie Mae loans.

More Flexible Requirements

Fannie Mae loans tend to have flexible requirements. For example, a Fannie Mae loan includes non-traditional income sources, such as income from family members, along with salary or wage income, when assessing whether your income is sufficient. Conventional loans will typically only look at your personal income to see if you are likely to pay back the loan.

Fannie Mae loans have flexibility with co-signers. A co-signer is a person who agrees to make the mortgage payments if the main borrower does not pay. In a non-conforming loan, the only co-signers allowed are any co-borrowers, such as a spouse who will be also living in the home.

However, Fannie Mae loans allow borrowers to have another person who is not living in the home co-sign on the mortgage. So, for example, a Fannie Mae loan enables a parent to co-sign for an adult child who would not otherwise qualify for a mortgage.

Mortgage Assistance Options

Fannie Mae has procedures in place to help homeowners with Fannie Mae loans who are facing financial hardship. 

Sometimes homeowners become unable to make their mortgage payments because of extended unemployment, being unable to work due to disability, the need to pay major medical bills or other significant life events. With a non-conforming mortgage, you would have to contact the lender and try to negotiate to avoid foreclosure. 

Fannie Mae mortgages provide homeowners with a variety of options to help them keep their homes when they have missed or anticipate missing mortgage payments. These options are as follows:

• Reinstating the loan – In this scenario, you would immediately pay the sum of any missed payments when possible and continue paying your normal mortgage payment each month thereafter.
• Repayment plan – If you have missed a couple of payments, this program splits up the amount of those missed payments and lets you repay them with slightly larger monthly payments over time until you are current.
• Payment deferral – This option keeps your monthly payment the same and adds the missed payments as additional monthly payments at the end of the loan at no interest.
• Modification – A modification keeps the current loan but changes one or more of the terms (i.e. the interest rate or the length of the loan) so that you have lower payments.
• Forbearance – With a forbearance, the lender agrees to give you a short break, where no payments are due, until you are in a more secure financial position.

*Refer to Mortgage Assistance and Relief Options for more information. This section also includes information on COVID-19 repayment options.

Disadvantages of Fannie Mae Loans & Other Options to Consider

• Higher down payment requirement than some government guaranteed loans
• Higher closing costs than some government guaranteed loans
• You cannot get loans above the limits (jumbo loans)
• You cannot qualify for a mortgage with a credit score below 620
• You cannot buy properties with more than 4 units

Fannie Mae Loans vs. Government-Guaranteed Loans

There are two types of non-conforming (non-Fannie Mae) loans: government-guaranteed loans and conventional loans. Government guaranteed loans are directly guaranteed by the federal government and serve specialized populations including low-income and rural Americans, veterans and Native Americans. In comparison to Fannie Mae loans, federal government loans often have better terms. 

The federal government guarantees loans through these entities:

• Department of Veteran Affairs (VA) – For veterans, service members and their spouses, these loans have favorable terms such as no down payment. 
• U.S. Department of Agriculture (USDA) – For those living in rural areas, USDA loans also do not require a down payment.

• Federal Housing Authority (FHA) – These loans to first-time home buyers and seniors have low down payment requirements, but also lower closing costs and credit score requirements than Fannie Mae loans.
• Department of Housing and Urban Development (HUD) Indian Home Loan Guarantee – Only available to those of Native American or other indigenous American ancestry, these loans have flexible eligibility requirements and low down payment requirements.

See Fannie Mae Loans vs. Government-Guaranteed Loans for more information on government-guaranteed loans.

Fannie Mae-Eligible Homes

If you want to get a Fannie Mae mortgage, the property that you buy must meet the requirements. Limiting your search to homes that meet the requirements will simplify the process when it is time to get financing.

Eligibility by Property Type

Loan Limits

Fannie Mae will not buy mortgages where the loan is above a certain amount. This is called the loan limit. The purchase price of the property less the amount of the down payment must be equal to or less than the loan limit to qualify. There are different loan limits depending on how many units are in the building and where the property is located.

By Type of Property

Fannie Mae only buys mortgages on properties that are between 1 and 4 units. A 1-unit property is a single-family home, and 2-4 unit properties can house two, three or four families. 

The typical owner-occupant purchases single-family homes, while investors who want to earn rental income buy either a single-family home or a multi-family property.

Ineligible properties include:

• Vacant land or land development properties
• Properties that are not readily accessible by roads that meet local standards
• Agricultural properties, such as farms or ranches
• Units in condo or co-op hotels 
• Properties that are not secured by real estate such as houseboats, boat slips and timeshares 
• Boarding houses 
• Bed and breakfast properties
• Properties that are not suitable for year-round occupancy regardless of location

By Location

For 2024, to meet Fannie Mae requirements, the amount of the mortgage of a single-family home can be no more than $766,550 for a single-family home in the contiguous 48 states, Washington D.C. and Puerto Rico. In Alaska, Guam, Hawaii, and the U.S. Virgin Islands, the loan for a single-family home cannot be more than $1,149,825. 

Fannie Mae loans are only available for properties located in the United States (including the District of Columbia), Puerto Rico, the U.S. Virgin Islands and Guam, although loans in Guam require special negotiation. 

To calculate whether a property falls within the loan limits, subtract your down payment from the purchase price. See Loan-to-Value Ratio (LTV) for an example.

Loan Limit Table by State & Territory

Number of Units	Contiguous States, the District of Columbia and Puerto Rico	Alaska, Guam, Hawaii, the U.S. Virgin Islands, and High-Cost Areas in the U.S.
1	$766,550	$1,149,825
2	$981,500	$1,472,250
3	$1,186,350	$1,779,525
4	$1,474,400	$2,211,600

How to Determine Loan Limits for High-Cost Areas in the U.S.

There are high-cost areas in the following states: 

If you are looking at properties in one of the above states and want to find out the Fannie Mae loan limit for a particular property, you can use the Area Median Income/Loan Limits Lookup Tool.

Loan-to-Value Ratio (LTV)

The loan-to-value ratio, or LTV, is the inverse of the down payment percentage. So if the down payment is 3%, the LTV is 97%. If the down payment is 25%, the LTV is 75%. 

To buy a home that costs more than the limit in your area, and if you want a Fannie Mae loan, you can decrease the loan-to-value ratio by increasing the down payment. 

The absolute minimum LTV for Fannie Mae is 97%, but the actual LTV that Fannie Mae will require depends on your combination of debt-to-income ratio (DTI), credit score and cash reserves. By having more debt, a lower credit score and less cash reserves, Fannie Mae may require a lower LTV and a bigger down payment to qualify.

Fannie Mae-Owned Homes From Foreclosure (HomePath)

Fannie Mae owns homes that it took in foreclosure when homeowners were unable to pay their mortgages. Homes that have been foreclosed on are also called real estate-owned (REO) properties. These homes are for sale, often at less than market value, under a Fannie Mae program called HomePath. Since these properties previously had a Fannie Mae mortgage, you can be sure that they meet Fannie Mae requirements. 

If closing costs are less than 3%, the buyer does not get the remainder. 

The credit can be used to pay closing costs, points and prepaids. It cannot be used to pay costs for title insurance, taxes and assessments, broker fees, and POC items. POC means “paid outside of closing” and refers to costs including fees for credit reports, mortgage insurance applications, the lender’s title policy, the loan origination fee and title transfers. 

In order to qualify for this credit, your real estate agent must enter information from your course completion certificate into the HomePath online system when making an offer.

How Fannie Mae Maintains Foreclosed Homes

Once Fannie Mae takes possession of the home, it continues to maintain the property so that it is market-ready, using local and national vendors. This ensures that the home is in fairly good condition when it is purchased.

Getting Foreclosed Homes Ready	colspan
Initially, once the property is vacated, Fannie Mae’s vendors do the following:	• Remove trash and debris • Winterizing, which prepares the plumbing system so that it is not adversely affected by very high or low temperatures, as and when required • Secure the property • Clean the interior  • Identify and repair all safety hazards
If needed, the vendors will also ensure that the home’s exterior looks like it is in good condition by doing the following:	• Install exterior doors, if damaged or missing  • Replace exterior porch light, if damaged or missing • Install finished handrails/guardrails  • Repair deck and wooden steps • Repair gutters • Repair fences • Rehang shutters • Paint over graffiti
Fannie Mae vendors also do ongoing maintenance while Fannie Mae owns the home, including:	• Monthly cleaning service • Exterior maintenance and snow removal • Emergency securing (like for forecasted storms) • Removal of additional debris • Identification and repair of all safety hazards

The homes are inspected periodically by Fannie Mae real estate agents, national third-party home inspection companies and Fannie Mae quality control specialists. Although Fannie Mae will do repairs and maintenance on the home as outlined above, they do not guarantee that everything in the home is working. HomePath homes, like other foreclosures, are sold in “as is” condition. 

This continued focus on improving and maintaining the condition of Fannie Mae foreclosures is not a requirement for non-Fannie Mae foreclosures. Non-Fannie Mae foreclosed upon homes may or may not have problems ranging from mild (dirty, leftover furniture and other belongings) to major (including mold, structural damage, vandalism, missing valuable items such as appliances, fixtures, and copper pipes) and structural issues. 

Home inspections will alert you to issues with the general condition of the home, repairs that are needed and major problems before buying. If the inspection uncovers problems with a HomePath home, you can decide whether or not to continue with the purchase.

How to Search for HomePath Homes Online

There is also a HomePath app you can download for your mobile phone or tablet. The app shows you photos and information about the homes, including prices, and has a travel time search feature that estimates your commute from the property to work and other locations. 

The HomePath app is available for Apple’s iOS devices on the App Store and for Android devices on the Google Play store.

First Look Program

First Look is a program that allows people who intend to live in a HomePath home first access to information so that they can make an offer and purchase a home without competition from investors.

Properties in the First Look program have a countdown clock showing you how much time is left in the First Look period so you can be aware of the time frame within which you can submit your offer without competing bids from investors. Once the First Look period expires, you can still submit an offer, but you might be bidding against investors who may offer more than you are willing to pay or buy the property first.

Who can make an offer via the First Look program?

• People who will occupy the property as their principal residence within 60 days of closing and will maintain their occupancy for at least 1 year (called owner-occupants)
  • Owner-occupant purchasers are required to sign an Owner Occupant Certification as an insurance policy to the Residential Real Estate Purchase and Sale Contract.
• Public entities and their partners
• Some non-profit organizations

Short Sales

An alternative to buying a home at market price or purchasing a foreclosure is buying a Fannie Mae short sale home. A short sale is similar to a foreclosure in that the homeowner is in financial distress and is having trouble making mortgage payments. However, in a short sale, the home is still owned by the homeowner, not by Fannie Mae. 

The total amount you pay goes directly to Fannie Mae. If an analysis of the current homeowner’s finances shows that they have some cash or assets that can be sold, Fannie Mae will specify how much of a contribution it will require, over and above the purchase price paid by the buyer in the short sale.

After taking into account any required contribution from the homeowner, Fannie Mae will then forgive the difference between the purchase price and the outstanding loan balance.

Homeowners who want to sell their home in a short sale and have a Fannie Mae mortgage must first qualify by:

• Being 90+ days delinquent and having a FICO score less than 620. 
• Being able to document a demonstrated hardship in the Borrower Response Package
• Filling out and signing Fannie Mae’s Homeowner Authorization Form
• Working with the loan servicer to determine how much is owed and owner equity and confirming that there is enough time before foreclosure for a short sale
• Getting a preliminary title search
• Submitting documents so that the loan servicer can analyze whether the homeowner has sufficient cash or assets to make a contribution to make up all or part of the shortfall between the short sale price and the mortgage balance

Fannie Mae provides tools to the listing agent to help them list the property as near to market value as possible, but it may end up being sold for less than market value because Fannie Mae is eager to convert it from a fixed asset into cash. 

Using a Real Estate Agent

Real estate agents are often familiar with Fannie Mae requirements, and real estate agents can  assist in finding a Fannie Mae eligible home. If you are buying a HomePath home, Fannie Mae requires you to use a real estate agent to submit your offer.

*See Fannie Mae-Owned Homes From Foreclosure for more information.

Real estate agents are real estate professionals who help prospective home buyers find a home to buy. A good real estate agent will be knowledgeable about the real estate market in general, fair pricing for the area, how to negotiate with sellers and how to read real estate sales documents.

Sellers frequently are also represented by a real estate agent, called the listing agent, who lists the home and a description in the Multiple Listing Service (MLS), shows the home to interested potential buyers and advises the seller on negotiating.

The term “Realtor” refers to agents, brokers, salespeople and other real estate professionals who are members of the realtor association. Going forward, “agent” will refer to both real estate agents and brokers. Real estate agents can be found online by doing an Internet search or by asking friends and family for referrals. 

It is standard practice for the seller of a property to pay the real estate agent’s commission, so except in rare cases where the buyer agrees to pay all or some of the real estate commission, there is no cost to the buyer to use a real estate agent.

HomePath Pro Agents

Fannie Mae has a program called HomePath Pro Agents where they train real estate agents on how to sell HomePath properties as a listing agent. A HomePath property is a home with a Fannie Mae mortgage in which the homeowner defaulted on the mortgage and Fannie Mae foreclosed on the property. 

HomePath Pro Agents can show you HomePath properties and facilitate your purchase of one, but because they are listing agents, they do not work for you, the buyer. Their main responsibility is to the seller (Fannie Mae). 

Hiring your own real estate agent, also called a buyer’s agent, can give you access to a professional whose main responsibility is to ensure that you get the home, price and terms that align with your goals.

Fannie Mae Mortgage Loans Explained

Fannie Mae has different types of loans to accommodate varying purchaser needs. Below is a description of each type of loan’s characteristics and eligibility requirements.

LLPA

Fannie Mae loans may entail payment of a loan-level price adjustment fee (LLPA) at closing. This fee increases depending on the relative risk of the transaction and type of loan. For example, the LLPA may increase for lower credit scores, lower down payments, when the loan is an adjustable rate mortgage (ARM), when the property is a manufactured home, a second home or an investment property. If there are multiple risk factors, the LLPA is cumulative to account for each of them.

Education Requirement

Each loan type has its own terms but all Fannie Mae loans have a homeownership education requirement. Fannie Mae offers a free online homeownership course through a partnership with Framework, a homeownership education company.

If there is more than one borrower, at least one of the borrowers must complete the course. An alternative to the online course is one-on-one homeownership advising through a HUD-approved counseling agency. This may be a beneficial option for buyers who need personalized assistance. If you would prefer the one-on-one advising option, talking to your lender beforehand will confirm if that will meet HomeReady’s mortgage education requirement.

Prospective borrowers who are unable to take the online course because of a disability, lack of Internet access or some other challenge can take a homeownership course in person or on the phone.

In this is your situation, you can call Framework’s toll-free customer service line for a referral to a HUD-approved counseling agency:

Fannie Mae will also accept other homeownership courses instead of the Framework course including the HomePath Ready Buyer course required when you buy a HomePath home and homeownership courses offered by HUD-approved agencies to fulfill the requirements of special programs that provide down payment assistance. For example, Community Seconds, state HFAs and HUD programs each offer their own homeowner education courses.

Learn more about approved homeownership courses on the Fannie Mae website here: https://singlefamily.fanniemae.com/originating-underwriting/mortgage-products/homeownership-education

HomeReady Loans

Fannie Mae formed an Economic and Strategic Research group to analyze how changing demographics affect Americans’ ability to buy a home. They found that:

• More and more millennials are moving from renting to buying a home, but they struggle with saving enough for a down payment.
• First and second generation immigrants often pool their resources to buy a home. Sometimes there is more than one family under the roof and other times a group of single people will buy a home together.
• More and more households are multi-generational, with an older parent living with middle-aged children or young adults living with middle-aged parents.

HomeReady’s mortgage terms are designed to help those with low income, young first-time homebuyers, minorities and mixed generation families buy homes, primarily by providing low down payment requirements and offering flexibility to borrowers to help them qualify. HomeReady loans can be either fixed-rate or adjustable-rate mortgages. 

Here are the highlights of a HomeReady loan, each of which is explained in more detail below.

• Available to both first-time home buyers and repeat home buyers
• Down payment requirement as low as 3%
• All or a portion of the down payment money can come from outside sources or cash on hand
• Flexible income requirements
  • Income from non-occupant co-borrowers 
  • Income from non-borrowing household members 
  • Rental income 
• Lower private mortgage insurance cost

Down Payment

HomeReady mortgage borrowers tipically need a down payment of at least 3%, depending on their credit, reserves and DTI. 

In addition, HomeReady is flexible about the sources of the down payment money. Most conventional mortgages have a minimum contribution requirement for down payments. This means that the borrower or borrowers must contribute a certain amount of the down payment from their own money that has been saved in a bank account over time. 

With HomeReady, borrowers can get all or part of the down payment money from other sources including gifts, down payment assistance programs and cash on hand. Down payment assistance programs are government or non-profit programs that give grants for all or a portion of a down payment to low-income borrowers. Borrowers can also get down payment funds from a Community Seconds loan.

You can do a quick online search for available down payment assistance programs in your area to see if you may be able to receive help.

*See Community Seconds for more information.

While borrowers using a conventional mortgage can use down payment assistance programs, they would need to contribute the minimum amount first and could only use the down payment assistance grant for the balance of the down payment.

Cash on hand is cash that a borrower has that is outside of a bank account. With a conventional mortgage, borrowers would have to deposit this money in a bank account and wait 60 days before being able to use it for a down payment. In contrast, HomeReady will accept this cash toward the down payment right away. Lenders may, however, require verification of the source of this cash on hand to ensure that it is not from illegal activity.

Flexible Income Sources

When lenders decide whether you qualify for a mortgage, one of the most important factors they consider is your income. Conventional mortgages only count borrowers’ employment income (including salary, wages, commission, bonuses and tips), alimony and child support income and savings/investment income (interest and dividends). 

A HomeReady loan counts those income sources, but also considers other income sources like those discussed below.

Income from non-borrowers living in the home

Sometimes, people may live in the home and share expenses but not be on the mortgage. This applies when, for example, multiple families live in the home, the home is multi-generational or an unmarried couple lives in the home but only one of them is on the loan. 

For HomeReady loans, the income of these additional non-borrowers is not counted as the borrower’s income, but it is used in the DTI qualification decision.

Co-signer income

If the borrower cannot qualify for a mortgage alone, he or she may be able to get another person with sufficient income or credit score to co-sign. HomeReady loans include this co-signer’s income along with the borrower’s income when deciding whether the income is sufficient for approval. 

The co-signer does not have to live in the home. So a parent, for example, could co-sign an adult child’s mortgage and the parent’s income would be added to the child’s for the purposes of qualifying.

Boarder income

If you have had a roommate renting space from you for at least 9 months of the most recent year and this person will be moving into your new home with you, you can include the income from your roommate’s monthly rent payments in your income when applying for a HomeReady loan.

You will have to supply proof that you have lived with this person for at least 9 of the months in the past year and the amount of rent they have paid you. This rental income will add to your existing income, up to 30% of qualifying income, making it easier to get approved.

Accessory dwelling unit rental income

An accessory dwelling unit (ADU) is a separate living area within the home, such as a detached outbuilding on the property, a unit above the garage (called a “mother-in-law” unit) or a basement apartment. To be considered an ADU, the living area must have its own entrance, kitchen and living area. It usually will share the main home’s water and electricity connection. 

If the home you are buying has an ADU and you are planning to rent it out, you can use the proposed rental income to qualify for a HomeReady loan. You do not need to have proof of previous roommates or any previous landlord experience or education. The home must be classified as a 1-unit (single-family) home with an ADU, not a 2-unit home. 

Lower Private Mortgage Insurance Cost

Whenever a homeowner’s LTV is more than 80%, the lender usually requires the borrower to have private mortgage insurance (PMI). Since mortgages with lower down payments are riskier, this insurance protects the lender in case of non-payment. Homeowners with PMI are required to continue paying its premiums until the equity in the home reaches 20%. Home equity is the difference between the amount owed on the mortgage loan and the amount your home is currently worth.

With a HomeReady mortgage, buyers putting less than a 20% down payment are still required to get PMI, but the required level of coverage is reduced. Since the coverage amount is lower, this translates into lower premiums for the buyer. In addition, once your equity reaches 20% through appreciation, accumulated payments or a combination, you can cancel the PMI.

HomeReady Eligibility Requirements

Income

In order to qualify for a HomeReady loan, your income must be 80% or less than your county’s area median income (AMI).

If you would like to apply for a HomeReady loan, you can find the AMI for any address with Fannie Mae’s Area Median Income Lookup Tool. It will show you the AMI and calculate 80% of the AMI for you.

If you are buying a home in an area where the median household income is 20% or more below the area’s average median household income, income limits do not apply.

Credit Score

Qualifying for a HomeReady loan requires a credit score that is minimum 620 or above. Depending on other factors, like DTI, reserves and the amount of the down payment, you may need a higher credit score to qualify. If there is more than one borrower, at least one borrower must have a credit score that meets this requirement.

Other Requirements

• Occupant-borrowers can only own one other financed home at the time of purchase
• The home being purchased with the HomeReady loan must be your primary residence
• Manufactured homes must meet the requirements of the MH Advantage program, or be subject to stricter LTV requirements.

*See MH Advantage Loans to learn about requirements.

• At least one of the borrowers must complete the homeownership education course

*See Homeowner Education Courses to learn about homeowner education requirements.

3% Down/97% LTV Mortgage

Although other Fannie Mae loans also offer a down payment as low as 3%, this option is for first-time home buyers whose income is more than the limit for HomeReady loans. 97% LTV loans are exclusively fixed-rate mortgages with terms up to 30 years.

Low Down Payment

With a 97% LTV loan, borrowers only need a down payment of 3% of the purchase price. As much as 100% of the down payment funds can come from borrower savings, gifts and grants, including a Community Seconds loan. If you get a Community Seconds loan to pay your down payment, your LTV can be as high as 105%.

*See Community Seconds for more information.

97% LTV Eligibility Requirements

First-Time Home Buyer and Occupancy

If there is more than one borrower, at least one of the borrowers must be a first-time home buyer. A first-time home buyer is defined as someone who has not owned a home within the previous 3 years. The home purchased must be the borrower’s primary residence.

Type of Property

Like HomeReady, this program is available for purchases of 1-4 housing units. But unlike HomeReady, it cannot be used for manufactured housing (mobile homes), which requires a minimum of a 5% down payment. This program also cannot be used for second homes or investment properties.

Income

There is no published minimum income requirement for 97% LTV loans. Since lenders must use Fannie Mae’s desktop underwriter (DU) software for all 97% LTV loans, the system will determine minimum income requirements given the size of the loan, credit score, DTI and other factors.

Credit Score

The minimum credit score is 620, but the DU may require a higher credit score based on other factors like DTI, the size of the loan, the home buyer’s income and the down payment.

HFA Preferred Loans

The HFA Preferred loan is a Fannie Mae conforming loan for low- to moderate-income borrowers that is processed through state Housing Finance Agencies (HFAs) or through approved lenders in an HFA network. It is available to both first-time homebuyers and repeat homebuyers.

List of Eligible Housing Finance Agencies by State & Territory

Choose your state or territory from the following list to view the contact information for the FHA in your area:

State/Territory	Name of HFA	Website	Phone Number
Alabama	Alabama Housing Finance Authority	https://www.ahfa.com/	800-325-2432
Alaska	Alaska Housing Finance Corporation	https://www.ahfc.us/buy	800-478-2432
Arizona	Arizona Finance Authority	https://housing.az.gov/general-public/arizxona-housing-finance-authority	602-771-1000
rowspan	Arizona Industrial Development Authority	https://arizxonaida.com/	480-902-3107
rowspan	The Industrial Development Authorities of the City of Phoenix	https://phoenixida.com/	602-262-6242
rowspan	The Industrial Development Authority of the City of Tucson	https://tucsonida.org/	520-882-5591 ext. 126
rowspan	The Industrial Development Authorities of the City of Pima	https://pimaida.org/	520 600-2082
Arkansas	Arkansas Development Finance Authority	https://adfa.arkansas.gov/	501-682-5900
American Samoa	Does not have an HFA that is eligible for HFA Preferred loans
California	California Housing Finance Agency	https://www.calhfa.ca.gov/	877-922-5432
Colorado	Colorado Housing and Finance Authority	https://www.chfainfo.com/	800-877-2432
rowspan	Metro DPA sponsored by the City and County of Denver	https://www.denvergov.org/content/denvergov/en/housing-information/resident-resources/affordable-home-ownership.html	720-913-1634
Connecticut	Connecticut Housing Finance Authority	https://www.chfa.org/	860-721-9501
D.C.	District of Columbia Housing Finance Agency	https://www.dchfa.org/	202-777-1600
Delaware	Delaware State Housing Authority	https://www.destatehousing.com/	888-363-8808
Florida	Florida Housing Finance Corporation	https://www.floridahousing.org/	850-488-4197
rowspan	Housing Finance Authority of Miami-Dade County	https://www.hfamiami.com/	305-594-2518
Georgia	Invest Atlanta	https://www.investatlanta.com/	404-880-4100
Guam	Guam Housing and Urban Renewal Authority	https://www.ghura.org/	671-477-9851
Hawaii	Does not have an HFA that is eligible for HFA Preferred loans
Idaho	Idaho Housing and Finance Association	https://www.idahohousing.com/	855-505-4700
Illinois	Illinois Housing Development Authority	https://www.ihda.org/	312-836-5200
Indiana	Indiana Housing and Community Development Authority	https://www.in.gov/ihcda/	800-872-0371
Iowa	Iowa Finance Authority	https://www.iowafinance.com/	800-432-7230
Kansas	Kansas Housing Assistance Program	https://kshap.org/	720-673-3948
Kentucky	Kentucky Housing Corporation	https://www.kyhousing.org/	502-564-7630
Louisiana	Louisiana Housing Corporation	https://www.lhc.la.gov/	888-454-2001
Maine	Maine Housing	https://www.mainehousing.org/	800-452-4668
Maryland	Maryland Department of Housing and Community Development	https://dhcd.maryland.gov/	(301) 429-7400
rowspan	Housing Opportunities Commission of Montgomery County	https://www.hocmc.org/	(240) 627-9400
Massachusetts	MassHousing	https://www.masshousing.com/	617-854-1000
Michigan	Michigan State Housing Development Authority	https://www.michigan.gov/mshda	855-646-7432
Minnesota	Minnesota Housing	https://www.mnhousing.gov/	800-657-3769
rowspan	Dakota County Community Development Agency	https://www.dakotacda.org/	651-675-4400
Mississippi	Mississippi Home Corporation	https://www.mshomecorp.com/	601-718-4642
Missouri	Missouri Housing Development Commission	https://www.mhdc.com/	(816) 759-6600
Montana	Montana Housing	https://housing.mt.gov/	406-841-2840
Nebraska	Nebraska Investment Finance Authority	https://www.nifa.org/	800-204-6432
Nevada	Nevada Housing Division	https://www.housing.nv.gov/	800-227-4960
rowspan	Nevada Rural Housing Authority	https://nvrural.org/	775-887-1795
New Hampshire	New Hampshire Housing Finance Authority	https://www.nhhfa.org/	800-640-7239
New Jersey	Does not have an HFA that is eligible for HFA Preferred loans
New Mexico	New Mexico Mortgage Finance Authority	https://www.housingnm.org/	800-444-6880
New York	The State of NY Mortgage Agency	https://hcr.ny.gov/sonyma	833-499-0318
North Carolina	North Carolina Housing Finance Agency	https://www.nchfa.com/	800-393-0988
North Dakota	Does not have an HFA that is eligible for HFA Preferred loans
Northern Marianas Islands	Does not have an HFA that is eligible for HFA Preferred loans
Ohio	Ohio Housing Finance Agency	https://ohiohome.org/	888-362-6432
Oklahoma	Oklahoma Housing Finance Agency	https://www.ohfa.org/	800-256-1489
rowspan	REI Oklahoma	https://www.reiok.org/	800-658-2823
Oregon	Portland Housing Bureau	https://www.portland.gov/phb	503-823-2375
Pennsylvania	Pennsylvania Housing Finance Agency	https://www.phfa.org/	800-822-1174
Puerto Rico	Does not have an HFA that is eligible for HFA Preferred loans
Rhode Island	Rhode Island Housing	https://www.rihousing.com/	800-427-5560
South Carolina	South Carolina State Housing Finance and Development Authority	https://www.schousing.com/	803-896-2211
South Dakota	South Dakota Housing Development Authority	https://www.sdhda.org/	605-773-3181
Tennessee	Tennessee Housing Development Agency	https://www.thda.org/	615-815-2200
Texas	Texas Department of Housing and Community Affairs	https://www.tdhca.state.tx.us/	512-475-3800
rowspan	Southeast Texas Housing Finance Corporation	https://sethfc.com/	281-484-4663
rowspan	Texas State Affordable Housing Corporation	https://www.tsahc.org/	877-508-4611
Utah	Utah Housing Corporation	https://utahhousingcorp.org/	801-902-8200
Vermont	Vermont Housing Finance Agency	https://www.vhfa.org/	802-864-5743
U.S. Virgin Islands	Does not have an HFA that is eligible for HFA Preferred loans
Virginia	Virginia Housing Development Authority	https://www.virginiahousing.com/	877-843-2123
Washington	Washington State Housing Finance Commission	https://www.wshfc.org/	800-767-4663
West Virginia	West Virginia Housing Development Fund	https://www.wvhdf.com/	800-933-9843
Wisconsin	Wisconsin Housing and Economic Development Authority	https://www.wheda.com/	608-266-7884
Wyoming	Wyoming Community Development Authority	https://www.wyomingcda.com/	307-265-0603

Down Payment

Like the other Fannie Mae loans, down payments can be as low as 3%. Some HFAs may also provide down payment assistance. Homeowners applying for an HFA loan can also apply for a Community Seconds loan to help with the down payment. If there is any down payment assistance, including Community Seconds, the LTV can be as high as 105%. 

As with other Fannie Mae loans, there is no minimum contribution requirement for HFA loans for single-family homes, but for 2-4 unit buildings, the minimum contribution is 3%.

*See the “HomeReady Eligibility Requirements” section for more information on minimum contribution.

Grant and Gift Money Accepted

Borrowers can use gift and/or grant money from friends, relatives, state agencies and non-profit organizations for all or part of their down payment, closing costs or financial reserves.

No LLPA for Low-Income Borrowers

If your income is equal to or less than 80% of the AMI, you will not be charged any loan level price adjustment fee (LLPA) at closing. This typically expensive fee accompanies loans where the risk is higher for the lender.

*See HomeReady Eligibility Requirements for more information on AMI.
 *See LLPA for more information on loan level price adjustments.

Type and Occupancy

HFA Preferred loans are only fixed-rate mortgages with a term between 15 and 30 years.  They are only for the borrower’s principal residence, not investment properties or second homes. 

Manufactured homes are allowed; this is the only Fannie Mae type of loan in which a mortgage on a manufactured home can have an LTV of more than 95%.

Lower Private Mortgage Insurance Cost for Low-Income Borrowers

The cost for private mortgage insurance is reduced for HFA Preferred loans borrowers whose income is at or below 80% of AMI, with no upfront cost at closing and a lower monthly premium payment. 

The coverage requirements for these borrowers vary by LTV: 

• 18% for LTVs ratios > 95% and < 97% 
• 16% for LTVs ratios > 90% and < 95% 
• 12% for LTVs ratios > 85% and < 90% 
• 6% for LTVs ratios > 80% and < 85% 

In addition, regardless of your income, once your equity reaches 20% through appreciation, accumulated payments or a combination, you can cancel the PMI.

HFA Preferred Eligibility Requirements

Eligibility requirements including income limits and reserves are set by your local HFA. Consult the List of Eligible Housing Finance Agencies by State & Territory for contact information for your local HFA.

MH Advantage Loans

The MH Advantage loan is a specialized loan for homebuyers who are buying a manufactured, or mobile home and it is available as both a fixed and adjustable rate mortgage. Fannie Mae considers a home to be manufactured housing if it is “a dwelling of at least 600 square feet and at least 12 feet wide, constructed to the “HUD Code” for manufactured housing, that is built on a permanent chassis, installed on a permanent foundation system, and titled as “real estate.”  

MH Advantage loans must be underwritten with the DU.

Lower Down Payment

With MH Advantage, down payments can be as low as 3%, unlike with a HomeReady manufactured housing loan, which requires a minimum of 5% down. Borrowers can also combine this with a Community Seconds loan to go toward the down payment and/or closing costs.

*Refer to HomeReady Loans and Community Seconds for more information.

Site Costs Included

With an MH Advantage loan, the sales price of the manufactured home can include expenses for transportation, the preparation of the site, and the installation of the dwelling at the location. With other types of loans for manufactured housing, the homebuyer would typically need to take out a separate construction loan to cover those costs.

Lower LLPA

Although you could use a HomeReady loan to finance a manufactured home, you would have to pay the MH LLPA as an extra cost. With MH Advantage, this MH LLPA is waived, although all other LLPAs would still apply.

Flexibility

The MH Advantage can be combined with the HomeReady loan to get the ability to use multiple down payment sources including Community Seconds as well as income source flexibility.

Lower Private Mortgage Insurance

Private mortgage insurance (PMI) coverage requirements are substantially lower (about half with LTV of 80%-90%) with an MH Advantage fixed rate mortgage than with a comparable Fannie Mae manufactured housing loan. Rates are the same with MH Advantage ARM.

MH Advantage Eligibility Requirements

In order to qualify for the MH Advantage loan, the home has to meet other additional qualifications including: 

• Specific architectural and aesthetic features, such as distinctive roof treatments (eaves and higher pitch roofline) 
• Lower profile foundation, garages or carports, porches, and dormers 
• Construction elements, including durability features like durable siding materials 
• Energy efficiency standards (minimum energy ratings apply)

MH Advantage eligible manufactured homes have a MH Advantage sticker applied by the home’s manufacturer. When applying for the MH Advantage loan, a copy of this sticker must be supplied to the loan originator. 

In terms of buyer requirements, the home must be the borrower’s principal residence and it has to be installed on land owned by the borrower, not land rented in a mobile home park.

Community Seconds

A Community Seconds loan is not a Fannie Mae loan, but it is used in conjunction with Fannie Mae loans. A Community Seconds loan is a separate mortgage loan that is used to provide funds for a Fannie Mae down payment and/or closing costs when the borrower does not have the funds available for these costs. Proceeds from the Community Seconds loan can also be used for renovations or a permanent interest rate buydown (also called points).

The Community Seconds loan is subordinate to the Fannie Mae loan, which means that in the event of a default, Fannie Mae gets paid back first from the money raised from sale of the foreclosure. Borrowers can even get two Community Seconds loans if the first one was not enough to cover the down payment. There is no LLPA on the Community Seconds loan itself.

In order to use this kind of loan with a Fannie Mae mortgage, Community Seconds loans must be provided by one of the following entities:

• Federal agency 
• Municipality, state, county, state or local housing finance agency
• Nonprofit organization
• Regional Federal Home Loan Bank under one of its affordable housing programs 
• Native American tribe or its sovereign instrumentality
• Employer

Repayment and Terms

Repayment terms differ by lender, but fall into one of the following categories:

• Paid monthly, just like a regular mortgage
• Deferred repayment, with no payments until a specified time
• No payments, balance is paid in full when the home is sold or the Fannie Mae loan matures, whichever comes first
• No repayment at all if the homeowner stays in the home for a certain number of years

Some Community Seconds loans have zero interest rate. If there is an interest rate, it cannot be more than two percentage points higher than the primary Fannie Mae mortgage to qualify. The Community Seconds loan cannot be funded through the first mortgage via premium pricing, where the lender charges a higher interest rate in exchange for a lender credit at closing.

Community Seconds Eligibility Requirements

Income

The lending entity sets its eligibility requirements. However, most Community Seconds mortgages are geared toward low-income borrowers, so applicants must typically meet the requirements for a low income.

LTV

The total LTV for all loans including the Fannie Mae loan and all Community Seconds loans must not be more than 105%.

Owner-Occupied

To get a Community Seconds loan, the home must be your principal residence.

Finding a Fannie Mae Lender

Borrowers can apply for a Fannie Mae loan multiple ways, including through a regional Federal Home Loan (FHL) bank, through an HFA (for HFA Preferred loans) or through a Fannie Mae-approved lender. The most common way is to apply for a loan through a Fannie Mae-approved lender. 

The organization that accepts the borrower’s mortgage application and associated paperwork and, after approval, provides the funds to buy the home is called the loan originator. The process of accepting, reviewing and approving the loan is called origination.

With a Fannie Mae loan, once the loan is originated, Fannie Mae then purchases the loan. The originator frequently will continue to service the loan, which includes accepting monthly mortgage payments and crediting them accordingly, keeping the escrow account to pay for homeowner’s insurance premiums and property tax, and communicating with the borrower when necessary. Sometimes, the originator will not service the loan, but instead will transfer servicing rights to a Fannie Mae-approved servicer.

Requirements to Be a Fannie Mae Lender

In order to become a Fannie Mae-approved lender, banks must go through an approval process that takes between 4 and 14 months. To qualify, they must: 

• Have a minimum net worth of $2.5 million,
• Be in business at least 2 years with originating loans as a principal part of their business, 
• *Have 25 basis points of unpaid principal balance for 1-4 unit residential loans,
• Service at least $25 million worth of loans in a calendar year, 
• Make at least one Fannie Mae loan per year, and
• Meet operational, quality control and servicing requirements. 

*A basis point is 0.01%. Lenders’ interest rates that they charge on residential properties must fall within a 25 basis point range around the pool pass-through rate. This ensures that lenders are not overcharging borrowers.

Fannie Mae trains the approved lenders that meet these requirements and assigns them a Fannie Mae Customer Account Manager (CAM) to help them with any questions or issues regarding Fannie Mae loan products. 

Fannie Mae lenders can find important information in the Selling Guide and Servicing Guide, which are online references with multiple parts.

About the Fannie Mae Selling Guide

To support lenders in selling and approving Fannie Mae loans, Fannie Mae provides them with an online resource called the Selling Guide. 

• Part A, Doing Business With Fannie Mae – This guides lenders through the process to become a Fannie Mae lender and shows them how to access Fannie Mae’s resources and maintain their eligibility as Fannie Mae-approved lenders.
• Part B, Origination Through Closing – This section lists the documents that borrowers need to submit, explains eligibility for a Fannie Mae loan based on owner-occupancy status, loan structure, borrower qualities and property characteristics, and details the approval process (underwriting requirements) and insurance and legal requirements.
• Part C, Selling, Securitizing and Delivering Loans – This outlines the process of getting the loans ready and selling them to Fannie Mae.
• Part D, Ensuring Quality Control – In this section, Fannie Mae outlines quality control for the lender’s organization to ensure that there are minimal defaults and late payments. 
• Part E, Quick Reference Materials – This has miscellaneous documents.

About the Fannie Mae Servicing Guide

The Servicing Guide is for those lenders who are continuing to service the loans and gives them information about how they need to interact with borrowers. 

• Part A, Doing Business With Fannie Mae – This goes over a lot of the same information as the similar section in the Selling Guide.
• Part B, Escrow, Taxes, Assessments, and Insurance – This section goes over how to collect, account for and pay escrow payments.
• Part C, Mortgage Loan Payment Processing, Remitting, Accounting, and Reporting – In this section, lenders get information on how to accept payments from borrowers, pass payments along to Fannie Mae and keep records on payments.
• Part D, Providing Solutions to a Borrower – Lenders can find out about how to help borrowers having financial difficulties here.
• Part E, Default-Related Legal Services, Bankruptcy, Foreclosure Proceedings, and Acquired Properties – Lenders receive information on how to deal with these events.
• Part F, Servicing Guide Procedures, Exhibits, Quick Reference Materials, and Change Control Log – This has miscellaneous documents and reference materials.

Applying for a Fannie Mae Loan

If you want to get a Fannie Mae loan, telling the lender up front will ensure that you are applying for the right loan. Some lenders have mortgages with similar terms to Fannie Mae loans, but are not, in fact, Fannie Mae loans so it is easy to get confused. 

Asking for Fannie Mae loans by name (HomeReady, 97% LTV, etc.) will decrease the chance that you apply for a loan that does not have all of the terms and protections of Fannie Mae.

Documents Needed

To apply for a mortgage, you will need to provide the lender with a variety of documents for them to make a decision about whether to approve a mortgage loan. 

1003 Form

When applying for a Fannie Mae loan specifically, there is one additional form that must be filled out. The 1003 form, also called the Uniform Residential Loan Application, is unique to Fannie Mae and Freddie Mac loans. 

You can fill out the form yourself and mail or email it to the lender, or you may give your answers to each question to the lender during a face-to-face interview or over the telephone. If you are filling it out yourself, your signature is needed at the bottom of the form. If it is filled out by the lender, you will be asked to sign it afterward. If all of your information is verified and the mortgage is approved, the lender will create another version of this application that you will be expected to sign at the closing. 

If you are married, but your spouse is not going to be on the mortgage as a borrower, you do not need to provide financial information for your spouse on the application. If you have a co-borrower whose money is not co-mingled with yours, you will need to fill out a separate Statement of Assets and Liabilities (form 1003A) for the co-borrower. An example of this is when your co-borrower is a parent who has separate bank accounts from yours.

In Section 8, the application asks for information on your race and ethnicity to help the government monitor compliance with equal credit opportunity, fair housing and home mortgage disclosure laws. These laws are designed to prevent discrimination based on race or ethnicity. Nevertheless, answering these questions is voluntary.

If you are a military service member stationed overseas or deployed aboard a United States vessel, you can have an individual with power-of-attorney fill out and sign the form for you as long as the power of attorney: 

• Expressly states an intention to secure a loan on a specific property, or
• Complies with the requirements under the VA Lender’s Handbook relating to powers of attorney for VA-insured mortgage loans, or
• The attorney-in-fact or agent is the spouse or domestic partner of the borrower, or
• The attorney-in-fact or agent signs the security instrument in their personal capacity with regard to their individual ownership interest in the mortgaged property, or
• Such use is required of the lender by applicable law

A power of attorney is a legal document giving another person, called the “attorney-in-fact” or “agent,” the ability to make legal decisions on another person’s behalf. The attorney-in-fact does not need to be a licensed attorney, but can be a spouse, family member, friend or advisor. Power of attorney documents can be temporary, as in the case of overseas deployment, or permanent, as in the case of mental incapacitation.

Other Required Documents

Along with the 1003 form, you will be required to provide the lender with the following documents and information: 

• A copy of the ratified sales agreement, if applicable
• Escrow/closing or settlement instructions, if applicable
• Income verification documents, which may include:
  • Pay stubs
  • Verbal verification of employment, including proof of business existence for self-employed borrower(s)
  • Schedule K-1
  • Lease agreements, if used (to show rental income not shown on tax returns)
  • IRS W-2 forms and IRS form 1099, if applicable
  • Evidence of receipt of rental payments, if applicable
  • Signed IRS form 4506-T for all borrowers whose income was used to qualify
  • Signed personal, partnership and/or corporate federal income tax returns
  • Documentation of rental management history, if applicable
  • Contracts for employment offers used for qualifying borrower(s)
• Asset verification documents, which may include:
  • Bank statements for the past 3-6 months, all pages
  • Retirement account statements for the past 3-6 months, all pages
  • Gift letters, source of gift funds and evidence of gift funds received
  • Investment statements for the past 3-6 months, all pages
  • Closing disclosure to confirm proceeds from the sale of a previous home
  • Evidence of liquidation of funds used for transaction
  • Borrower explanations for large deposits
  • Evidence of source of funds for large deposits

• Other personal documents, which may include:
  • Documentation used to develop a nontraditional credit history, like housing payment history or utility payment history with canceled checks, if applicable
  • Release evidence of judgments and liens, if applicable
  • Borrower explanations for derogatory credit, inquiries or other credit issues
  • Documentation to support liabilities not on the credit report like child support, alimony, student loans
  • Proof of sale of a previous residence, if applicable
  • Divorce decree or legal separation agreement, if applicable
  • Release from bankruptcy and schedule, if applicable
  • Mortgage payment history for previous or current (if refinancing) mortgage

Fannie Mae Approval

The process that a loan originator goes through in order to determine if it will approve a mortgage application is called underwriting. 

Eligibility Matrix

After the application is received but before the formal underwriting process begins, lenders review the eligibility matrix to ensure that borrowers achieve some of the preliminary benchmarks that make them eligible to be considered. The eligibility matrix shows what combination of DTI, LTV (down payment), reserves and credit score are acceptable.

HomeReady Eligibility Matrix for a Single-Family Home

To determine what credit score is needed to qualify for a HomeReady loan, see the table below, which is broken down by DTI, LTV and reserves.

If you have:	colspan	Then your credit score must be at least:
DTI	LTV	Reserves
36% or less	75% – 95%	0	680
36% or less	less than 75%	0	640
36% or less	less than 75%	2	620 (for fixed-rate mortgages only)
36% or less	75% – 95%	6	660
37% – 45%	75% – 95%	0	720
37% – 45%	less than 75%	0	680
37% – 45%	75% – 95%	6	700
37% – 45%	less than 75%	6	660

Learn more about the eligibility matrix by referencing the Fannie Mae Eligibility Matrix tables here: https://singlefamily.fanniemae.com/media/20786/display

Underwriting Assessment and Factors for Consideration

There are two methods of underwriting for Fannie Mae loans. One is where the lender uses Fannie Mae’s proprietary software called the Desktop Underwriter, or DU. Lenders enter information into the DU and the software will output a decision about whether the loan should be approved. 

The DU will output one of the following recommendations:  

• Approve/eligible – This means that the loan was approved and that the lender does not have to provide further proof to Fannie Mae supporting its income verification.
• Approve/ineligible – This means that the loan was approved and that the lender must provide documentation to Fannie Mae regarding income verification.
• Refer with caution – This means that the loan cannot be approved as a Fannie Mae loan. Lenders are instructed to make sure that the information entered into the DU is accurate and, if it is, the loan application is rejected.
• Out of scope – This means that the DU cannot handle this particular application and the application needs manual underwriting.

Some types of loans, including the 97% LTV loan and MH Advantage are required to be underwritten through the DU.

*See MH Advantage Loans for more information.

In certain circumstances, like when a borrower has a lower than required credit score or a thin credit history, the lender can opt to do manual underwriting rather than using the DU. Manual underwriting provides more flexibility in some cases in which the DU would have rejected the borrower’s application.

HomeReady loans can be underwritten either using the DU or manually as long as the LTV is no more than 95%. HomeReady loans with an LTV over 95% must go through the DU. 

HFA Preferred loans can also be underwritten using either the DU or manually.

Credit

The borrower’s credit score is an important part of what the underwriting process assesses to determine the risks of a serious default. 

The HomeReady eligibility matrix shows that a borrower with a 620 credit score meets minimum qualifications if the DTI is 36% or less and the down payment is 25% or more and the borrower’s cash reserves are at least twice the monthly mortgage payment.

Nontraditional Credit Profile

There is one credit exception, however. On HomeReady manually underwritten loan applications, if one or more of the borrowers do not have a credit score as a result of a thin credit history rather than derogatory items on the credit report, it is still possible to be approved. 

When a borrower has too short a credit history, not enough credit accounts or credit accounts that are not used often enough to result in a credit score, the lender must supplement the traditional credit file with a nontraditional credit profile. Compiling a nontraditional credit profile is not allowed when a borrower has a credit score below 620, only when there is no credit score.

If one or more borrowers have no credit score, a nontraditional credit profile can be built with at least two of the following: 

• Rental payment history (this is required for underwriting through DU)
• Payments to utility companies (electricity, gas, water, television, telephone and internet)
• Medical insurance coverage outside of payroll deductions
• Cell phone payment history
• Life insurance policies outside of payroll deductions
• Payments for household or renter’s insurance
• Regular payments to local stores, such as department stores, furniture stores, appliance stores
• Rental payments for durable goods, such as automobiles
• Payment of medical bills
• Payment of school tuition
• Payments for child care
• A loan obtained from an individual, provided the repayment terms can be documented in a written agreement
• Checking account, savings account, voluntary payments made to a payroll savings plan or contributions to a stock purchase plan, provided the records reflect an increasing balance as a result of periodic deposits over at least the most recent 12 months. Contributions must have been made no less than quarterly.
• Wire remittance statements demonstrating a consistent amount of funds remitted over the most recent 12-month period

If all of the borrowers require a nontraditional credit profile but none of them are able to document a rental payment history, then 12 months of reserves (essentially 12 months’ worth of payments) are required for approval.

In a situation where there is more than one borrower and one of the borrowers has a credit score and contributes more than 50% of the qualifying income, there is no need to build a nontraditional credit file for the person without a credit score; the application would be assessed using the credit score of the borrower contributing more income.

Income

Fannie Mae’s underwriting examines borrower income to make sure that they can afford to make their mortgage payments each month. 

Income Variability

Fannie Mae’s underwriting prefers borrowers whose income is steady and predictable. Workers who change jobs frequently but maintain income flow are acceptable. Borrowers whose income is variable in whole or in part need to document their prior earnings for the previous 1 to 2 years to prove that their income is reliable. 

Variable income includes: 

• Commissions 
• Bonuses 
• Substantial amounts of overtime pay 
• Fluctuating hours for hourly workers
• Employment that is subject to time limits, such as contract employees, freelancers or tradesmen

Income Continuance

If all or some of the borrower’s income is of a temporary nature, the borrower needs to document that this income will continue for at least three years. Temporary income sources include:

• Alimony or child support payments
• Distributions from a retirement account (401(k), IRA, SEP, Keogh)
• Mortgage differential payments
• Notes receivable
• Public assistance
• Royalty payment income
• Social Security (not including retirement or long-term disability)
• Trust income
• VA benefits (not including retirement or long-term disability)

Non-Taxable Income

Certain kinds of income are non-taxable. This includes child support payments, Social Security benefits, workers’ compensation benefits, certain types of public assistance payments, and food stamps. These non-taxable income sources count at 125% of their amount when the lender is underwriting the loan.

Military Income

Some military personnel are entitled to supplemental pay in addition to their base pay. This includes flight or hazard pay, rations, clothing allowance, quarters’ allowance, proficiency pay and income from military reservists. As long as this supplemental pay is documented to be ongoing, it will count toward the income requirement for underwriting.

Second Jobs and Seasonal Work

Income from second jobs and seasonal work can be included in the income assessment. It is recommended that the borrower document at least two years of such income, although it does not have to be with the same employer. For seasonal work, the borrower’s employer needs to document a reasonable expectation of hiring the borrower back for the next season.

Down Payment

The more money used as a down payment (the lower the LTV), the more flexible Fannie Mae’s underwriting will be with other financial markers (credit score, DTI and reserves) because it reduces Fannie Mae’s risk.

In another example, a borrower has a relatively high DTI of 40% and zero reserves. By putting at least 25% down, the borrower would only need a 680 credit score compared to 720 with a lower down payment.

Down Payment Assistance

One of the features of a Fannie Mae loan is that, for single-family home loans, borrowers can get their down payment from a variety of sources; it does not have to come exclusively or even partially from savings. 

Down payment assistance programs are available to first-time home buyers, low- to moderate-income homebuyers and people buying a home in a “targeted” census tract. They also usually require that the home be the buyer’s primary residence.

Sources of down payment assistance can include:

• Gifts from family or friends
• Grants from nonprofits or governmental agencies
• State or local HFAs
• Community Seconds loans 

*See Community Seconds for more information.

List of Down Payment Assistance Programs by State & Territory

Choose your state or territory below to see the contact information for the down payment assistance programs in your area, if available:

Location	Program/Organization	Contact Info
Alabama	Alabama Housing Finance Authority’s Step Up	https://www.ahfa.com/homebuyers/programs-available/step-up 800-325-2432
Alaska	Alaska Housing Finance Corporation Closing Cost Assistance Program	https://www.ahfc.us/buy/loan-programs/closing-cost-assistance-program-faq 888-854-3884
rowspan	Neighborworks Alaska	https://www.nwalaska.org/ 907-677-8490
American Samoa	No down payment assistance is available.
Arizona	Arizona Department of Housing’s Home Plus	https://homeplusaz.com/ 602-584-7587
Arkansas	ADFA Move-Up Choice	https://homeloans.arkansas.gov/move-up/ 501-682-5466
rowspan	ADFA Down Payment Assistance Program	https://homeloans.arkansas.gov/dpa/ 501-682-5466
California	CalHFA MyHome Assistance Program	https://www.calhfa.ca.gov/homebuyer/programs/myhome.htm 877-922-5432
Colorado	CHAC Down Payment Assistance Program	https://chaconline.org/borrowers/ 303-572-9445
Connecticut	CHFA Down Payment Assistance Program	https://www.chfa.org/homebuyers-homeowners/homebuyers/downpayment-assistance-program-dap-loan (860) 571-3541
Delaware	Down payment assistance programs are only available when you get a loan through DHSA, not for Fannie Mae loans.
District of Columbia	Home Purchase Assistance Program	https://dhcd.dc.gov/service/home-purchase-assistance-program-hpap 202-442-7200
Florida	FHFC 3-Percent HFA Preferred Grant	https://www.floridahousing.org/programs/homebuyer-overview-page 850-488-4197
Georgia	Georgia Dream Homeownership Program	https://www.dca.ga.gov/safe-affordable-housing/homeownership/georgia-dream 404-679-4840
Guam	CMG Financial’s HomeFundIt	https://www.cmgfi.com/homefundit 833-362-0619
Hawaii	No down payment assistance programs available.
Idaho	IHFA HOME Down Payment Closing Cost Assistance (DPCC)	https://www.idahohousing.com/homebuyers/down-payment-closing-cost-assistance/ 866-432-4066
Illinois	Down payment assistance is only available when you get an IHDA mortgage, not a Fannie Mae mortgage.
Indiana	Down payment assistance is only available when you get an FHA mortgage, not a Fannie Mae mortgage.
Iowa	IFA First Home	https://www.iowafinance.com/homeownership/down-payment-programs/ 800-432-7230
Kansas	KHRC First Time Homebuyer	https://kshousingcorp.org/homeowners/first-time-homebuyer/ 785-217-2001
Kentucky	KHC Regular and Affordable DPA	https://www.kyhousing.org/Homeownership/Future-Homebuyers/Pages/Down-Payment-Assistance.aspx 800-633-8896
Louisiana	LHC MRB Program	https://www.lhc.la.gov/mrb-homebuyers 888-454-2001
Maine	Down payment assistance is only available when you get an MSHA mortgage, not a Fannie Mae mortgage.
Maryland	MDHCD Down Payment Assistance and Partner Match Programs	https://mmp.maryland.gov/Pages/Downpayment.aspx 800-638-7781
Massachusetts	The Boston Home Center Down Payment Assistance	https://www.boston.gov/departments/neighborhood-development/find-financial-help-owning-home 617-635-4663
Michigan	MSHDA MI Home Loan	https://www.michigan.gov/mshda/0,4641,7-141-45866_45868-370762–,00.html 855-646-7432
Minnesota	Down payment assistance is only available when you get an MFHA mortgage, not a Fannie Mae mortgage.
Mississippi	Mortgage Credit Certificate	https://www.mshomecorp.com/programs/mortgage-credit-certificate/  601-718-4642
Missouri	MHDC Next Step	https://mhdc.com/services/homebuyer-programs/next-step/ (816) 759-6600
Montana	NeighborWorks Montana	https://www.nwmt.org/lending/for-lenders/ 406-604-4540
Nebraska	Down payment assistance is only available when you get an NIFA mortgage, not a Fannie Mae mortgage.
Nevada	Nevada Housing Division Home Is Possible	https://www.homeispossiblenv.org/home-possible-nevada-down-payment-assistance-programs 888-486-8775
New Hampshire	New Hampshire Housing Home Preferred Plus	https://www.gonewhampshirehousing.com/our-programs/mortgage-programs 888-781-8634
New Jersey	Down payment assistance is only available when you get an NJHMFA mortgage, not a Fannie Mae mortgage.
New Mexico	Down payment assistance is only available when you get an MFA mortgage, not a Fannie Mae mortgage.
New York	SONYMA Graduate to Homeownership	https://hcr.ny.gov/optional-add-features#graduate-to-homeownership 877-726-5570
rowspan	HomeFirst Down Payment Assistance	https://www1.nyc.gov/site/hpd/services-and-information/homefirst-down-payment-assistance-program.page 212-863-6300
North Carolina	Down payment assistance is only available when you get an NCHFA mortgage, not a Fannie Mae mortgage.
North Dakota	Down payment assistance is only available when you get an NDHFA mortgage, not a Fannie Mae mortgage.
Northern Mariana Islands	No down payment assistance is available.
Ohio	Your Choice! Down Payment Assistance	https://myohiohome.org/downpaymentassistance.aspx 888-362-6432
Oklahoma	OHFA Homebuyer Down Payment Assistance	https://www.ok.gov/ohfa/Homebuyers/index.html 800-256-1489
Oregon	Various local programs	https://www.oregon.gov/ohcs/homeownership/Pages/downpayment.aspx 503-986-2000
Pennsylvania	Employer Assisted Housing Initiative	https://www.phfa.org/programs/assistance.aspx 855-827-3466
Puerto Rico	Various programs under PRHFA	https://www.gdb-pur.com/principalsubsidiaries/housing-finance-authority03.html 787-722-2525
Rhode Island	10kDPA	https://www.rihousing.com/10kDPA/ 800-427-5560
South Carolina	Down payment assistance is only available when you get an SC Housing mortgage, not a Fannie Mae mortgage.
South Dakota	SDHDA Down Payment Assistance	https://www.sdhda.org/homeownership/downpayment-assistance 605-773-3181
Tennessee	Tennessee Housing Development Authority	https://thda.org/homebuyers/down-payment-assistance  800-228-8432
Texas	My First Texas Home	https://thetexashomebuyerprogram.com/ 800-792-1119
U.S. Virgin Islands	HOME Program	https://vihfa.gov/homeownership-programs/ 340-772-4432 ext. 3238
Utah	Down payment assistance is only available when you get an FHA or VA mortgage, not a Fannie Mae mortgage.
Vermont	ASSIST	https://www.vhfa.org/homebuyers/loanprograms 800-339-5866
Virginia	Down Payment Assistance Grant	https://www.vhda.com/Homebuyers/Pages/DownPayment.aspx  877-843-2123
Washington	Home Advantage DPA	https://www.wshfc.org/buyers/downpayment.htm 800-767-4663
West Virginia	Homeownership Program	https://www.wvhdf.com/home-buyers/homeownership-program 800-933-8511
Wisconsin	WHEDA Easy Close DPA	https://www.wheda.com/homeownership-and-renters/home-buyers/getting-started/available-programs 608-266-7884
rowspan	WHEDA Capital Access DPA	https://www.wheda.com/homeownership-and-renters/home-buyers/getting-started/available-programs 608-266-7884
Wyoming	Amortizing DPA Loan Product	https://www.wyomingcda.com/homebuyers/ 307-265-0603

Fannie Mae Loan Application Rejections

There are two major reasons that your Fannie Mae loan application gets denied: 

1. You do not meet the minimum qualifications
2. You have not provided sufficient paperwork to the lender to verify employment, income, property specifics or credit

Solutions Following a Loan Rejection 

• If you are applying for a loan that requires underwriting using the DU (97% LTV and MH Advantage) and you are certain that you meet or exceed the minimum qualification levels for credit score, DTI, reserves and down payment for the loan you are applying for, double checking with the lender representative can help ensure that the information was accurately entered into the DU. 
• With a HomeReady or HFA Preferred loan, asking the lender to do manual underwriting can let the lender take into account extenuating circumstances that may help your loan application. 
• Although Fannie Mae has its own minimum qualifications, some lenders will add their more stringent qualifications on top of that. Going through the process with another lender offering the same Fannie Mae loan may be more accepting.
• If your application was denied because of a lapse in employment and you have since gotten a new job, supplying new information may help. You can also inform the lender about new developments in your DTI, credit score, down payment amount or reserves if they have improved.
• Sometimes the loan application is denied because of a low appraisal or repairs that are needed, as shown on a home inspection report. In this case, renegotiating the purchase price with the seller may bring the LTV down, thereby fixing the problem.
• If elements of the property itself have caused the denial, finding another home to buy that meets lender qualifications may fix the problem.
• Delaying buying a home may give you time to repair problems with credit, a high DTI or a  low down payment.

Mortgage Assistance and Relief Options

When you have a Fannie Mae loan and find yourself in serious financial difficulty, Fannie Mae has options to help you avoid foreclosure.

Forbearance

A forbearance plan is a written agreement between you and the mortgage server to temporarily reduce or suspend your mortgage payments. You will still owe the money, but will pay it once you get back on your feet financially and the forbearance plan has ended. The amount owed will usually be paid back over time rather than in one lump amount to make it easier to afford.

When you are having trouble making your Fannie Mae mortgage payments, forbearance is the first step. Forbearance is an option if the cause of your financial distress is the result of a job loss, disability, medical bills or divorce. 

Repayment Options

When you go through a forbearance, your loan servicer will call you about 30 days before the end of your forbearance period to discuss and agree on a repayment option to account for any missed or reduced payments. There are plenty of options for repayment.

Reinstatement

In a reinstatement, you would pay off the entire forbearance amount – the total amount of money that has accrued during the forbearance period – at once. This would only be an option if you could afford to do so.

Repayment

A repayment plan would take the forbearance amount due and split it into a number of payments that would be added to your regular mortgage payment due each month.

Loan Modification

If your financial hardship is more lasting, a loan modification could change the terms of your existing mortgage so that it is more affordable. For example, your interest rate may be reduced or the term of the mortgage may be extended so that your payments are lower. With a loan modification, you would have to make your payments on time for a trial period in order for the modified terms to become permanent. 

You can also reach out to your mortgage servicer to start this process. The loan servicer may be a different company than the lender that originated your mortgage. You can find your servicer’s contact information on your mortgage statement.

Other Kinds of Fannie Mae Loans

In addition to loaning money to prospective homebuyers to purchase a home, Fannie Mae also has refinancing, energy efficiency and renovation loans.

Fannie Mae Refinancing Loans

Refinancing is a process that a homeowner can choose to pursue after a mortgage is already in place. Refinancing is different from a modification because in a modification, the loan is not paid off and it must stay with the same lender/servicer. 

Refinancing is essentially replacing an existing mortgage with a new mortgage. You can usually refinance with the same lender you used for your original mortgage or a different lender that may offer you a lower rate. The new mortgage will pay off the original mortgage in full and start from the beginning. 

Reasons to Consider Refinancing

In a refinancing, the owner gets a new mortgage with new terms to replace the existing mortgage. Homeowners may opt for refinancing if they can get a lower interest rate, if they want to switch from an adjustable to a fixed rate mortgage or if they want to take cash out of the equity in their home. 

Interest Rate Reduction

The interest rate is the main way that borrowers pay for the loan. Because mortgages are generally long-term loans, a seemingly small difference in the interest rate reduces monthly payments and significantly reduces the amount paid over the length of the loan.

Sometimes, the market interest rate charged by lenders goes down from the time that the original loan was made. Other times, market rates stay relatively steady, but the individual borrower’s circumstances, including income, DTI and credit score, improve so that he or she now qualifies for a much lower interest rate.

Cash Out Refinancing

Another reason that some homeowners choose to refinance is to extract cash from the equity in their homes. They may want cash to do home renovations, invest in clean energy upgrades to the home or for some other purpose, such as paying college tuition.

Using home equity for this type of large expenditure can cost less  than using other kinds of debt such as credit cards and personal loans because home loan interest rates are much lower and the interest payments may be tax deductible.

In cash out refinancing, the loan amount includes not just the unpaid principal balance but also an additional amount at closing, which will be given to the owners in the form of a cashier’s check. 

Disadvantages of Refinancing 

Even if interest rates are lower when a homeowner is considering refinancing, this option may not be the right solution for everyone at all times. 

Cost of Refinancing

There are several possible disadvantages to refinancing. The main one is that if a homeowner replaces an original mortgage with one that is the same term, they will be resetting the clock on their mortgage payoff and will tipically pay more interest in the long run. 

In addition, they will need to pay a new round of closing costs. These can amount to 2%–5% of the principal balance. Closing costs may include:

• Prepayment fee (1-6 months’ interest payment)
• Application fee ($75-$300)
• Origination fee (0%-1.5% of the loan principal)
• Discount points (0%-3% of the loan principal)
• Appraisal fee ($300-$700)
• Inspection fees ($175-$350)
• Mortgage insurance (.5%-1.5% of the loan principal)
• Title search and insurance fees ($700-$900)

Situations Where Refinancing May Not Be Advantageous

1. For people who have owned the home for a long time and are at the end of the mortgage term, because most of their monthly mortgage payments are currently going to pay down principal and a refinancing would reset the process and require them to go back to paying mostly interest on the home.
2. For people whose current mortgage has a prepayment penalty, because it may cost them a significant amount to refinance.
3. For people who are planning to move in the next few years, because the savings they get from a lower interest rate may be less than what they may need to pay in closing costs for a home they are planning to leave soon.  

The Refinancing Process

Similar to applying for an original mortgage, prospective homeowners will need to apply and qualify in order to refinance. All of the same paperwork that is necessary for an original Fannie Mae loan will be needed during a refinancing, including form 1003. Additionally, the process for approval is the same as it would be for an original mortgage, including manual underwriting or via DU, as allowable by type of loan and as dictated by the circumstances of your application. 

*Refer to Applying for a Fannie Mae Loan to learn about the standard application process and the documents needed. 

Only Fannie Mae loans can be refinanced through Fannie Mae, but the loan originator does not have to be the same as the one on the original mortgage. Fannie Mae HomeReady, MH Advantage, HomeStyle Renovation and HomeStyle Energy products can all be used for either purchase or refinancing. 

*Refer to HomeStyle Renovation Loans and HomeStyle Energy Loans to learn more.

High LTV Refinance Option

Although the 97% LTV loan product is not available for refinancing, Fannie Mae does offer a High LTV Refinance option. For this option, one of the following criteria must be met:

• A reduced monthly principal and interest payment  
• A lower interest rate  
• A shorter amortization term  
• A  more stable mortgage product, such as moving from an adjustable rate mortgage to a fixed rate mortgage

Transferable PMI

With the High LTV Refinance option, mortgage insurance (MI) is transferred from the original loan to the new loan, saving the homeowner money. If MI is not in place for the loan being refinanced, it is not required for the new loan if all other requirements are met.  

Less Documentation Needed

This loan has simplified documentation requirements compared to the original mortgage. This includes documentation needed to verify employment, income, and assets.  

Underwriting Flexibility

Both DU and manual underwriting options are available to the same or a new servicer.

High LTV Refinance Eligibility Requirements

In order to qualify for the High LTV Refinance Option, the following requirements must be met:

• At least 15 months must have passed from the date of the original mortgage to the date of the refinance
• The original mortgage was a Fannie Mae loan
• Borrowers are current with their mortgage payments and must have
  • No 30-day delinquencies in the most recent six months, and 
  • No more than one 30-day delinquency in the past 12 months and no delinquency greater than 30 days.

HomeStyle Renovation Loans

The HomeStyle Renovation loan is used either in a new purchase where the borrower is planning on immediately doing home renovations or when a homeowner with a Fannie Mae loan wants to do a cash-out refinance for renovations.

Funds can be used for renovations for needed repairs to the home that the borrower is aware of at the time of purchase like replacing a roof, replacing an old or leaking HVAC system or rebuilding a deck or porch that has rotted wood. The cash can also be used for less urgent renovations such as:

• Updating kitchen and/or bathrooms
• Landscaping
• Removing old carpeting or popcorn ceilings
• Restoring original flooring or architectural features on an older home 
• Interior and exterior painting
• Building additional rooms, adding/removing interior walls
• Adding features such as an in-ground pool, retaining wall or dock

Lender Approval of Renovation Funds

In order to get a HomeStyle Renovation loan, the homeowner needs to work with a contractor to create and submit a quote before the home purchase. The lender will then take into account both the purchase price and the renovation cost to calculate an “as completed” value to be used for the loan. 

With a HomeStyle Renovation loan, the additional funds above the purchase amount are put into an escrow account rather than given to the borrower in a cashier’s check. When funds are needed for renovation, the contractor submits invoices to the lender who manages dispersal of funds based on inspections. Then, when all work has been completed, the lender will order a final inspection and appraisal and submit the certificate of occupancy to Fannie Mae.

HomeStyle Energy Loans

Like the HomeStyle Renovation loan, HomeStyle Energy loans can be used for either initial home purchase or refinancing with cash-out for home energy or disaster mitigation home projects. This allows the homeowner to borrow for these projects at a lower interest rate than other kinds of debt, save money on future utilities and repair costs, and take advantage of tax credits and rebates for energy efficiency and renewable energy.

As with a HomeStyle Renovation loan, funds for energy- or resiliency-related improvements are held in a separate account and managed by the lender until the project is completed.  

Flexibility on Underwriting

HomeStyle Energy loans are available on all 1–4 unit residential property types including manufactured homes as long as the upgrades do not include structural changes. They can be underwritten manually or via the DU. 

When being manually underwritten, if the borrower does not meet the requirements in the Eligibility Matrix for a 45% DTI, a DTI of 38% instead of the maximum of 36% will be allowable if the DOE Home Energy Score Report has a score of 6 or higher.

*See Eligibility Matrix for more information. 

When the loan is underwritten with the DU, lenders are allowed to disregard an “ineligible” outcome if the loan is being used to pay off energy-related improvements financed with a credit card or other unsecured debt. 

Amount of Cash for Energy Upgrades

The cash out amount cannot exceed 15% of the “as-completed” appraised property value. So for a home that originally costs $180,000, the amount of the cash for energy/resilience upgrades cannot be more than needed to bring the property value up to $207,000. If there is a 1:1 ratio of expenditure to property value increase, the cash out money in this example is limited to $27,000.

Not all energy upgrades produce a one-to-one increase in property value. For example, prices to install a solar system vary widely by state and the value that they add to your home’s value depends on the cost of electricity in your area, the amount of energy used and state laws that regulate how much utilities must pay for any excess energy produced by your system. 

Reduced Need for a Home Energy Report

When you are planning for certain energy upgrades, Fannie Mae does not require you to get a home energy report. The energy projects that are exempt from a home energy report are:

• Weatherization items – These are exempt if the mortgage transaction is limited to just financing the purchase of basic weatherization items (such as programmable thermostats and insulation) or water efficiency devices (such as low-flow showerheads) up to a total cost of $3,500.
• Payoff of PACE loans – PACE loans are specialized loans for energy improvements that are wrapped into existing mortgage obligations. A HomeStyle Energy loan or refinance can be used to pay off these higher interest rate loans, as long as they are paid off in full.
• Payoff of non-PACE energy-related debt – Documentation must show the funds were used solely for the purchase and installation of eligible energy-related improvements on the property.
• Installation of renewable energy sources – This includes water efficiency devices, solar panels, wind power devices, and geothermal systems. 
• Installation of a radon remediation device – Radon is a naturally occurring radioactive gas caused by the breakdown of uranium in soil, rock and water. It can seep into your home through cracks in the foundation and other openings and is the second leading cause of lung cancer in the US. Radon remediation devices can reduce the occurrence of radon up to 99%.
• Environmental hazard damage repairs or resiliency improvements – These are improvements that can help eliminate or reduce environmental damage or repair damage that has already happened. Examples include hurricane shutter installation and replacing a roof that has been seriously damaged in a wildfire.

If you are planning on any other types of energy upgrades, Fannie Mae will require a home energy report. To allow the borrower to qualify for a HomeStyle Energy loan, the energy report must:

• Identify the recommended energy improvements and expected costs of the completed improvements.
• Specify the monthly energy savings to the borrower.
• Verify that the recommended energy improvements are cost-effective.

To be acceptable to Fannie Mae, home energy reports must be either a:

• Home Energy Rating Systems (HERS) report completed by a HERS rater who is accredited under the Mortgage Industry National Home Energy Rating Standards (HERS Standards),
• Department of Energy (DOE) Home Energy Score Report completed by an independent third-party energy assessor with DOE credentials, or
• Rating report completed by an independent and certified home energy consultant or auditor, comparable in rating methods and scope to the HERS or Home Energy Score evaluation, and that is permitted under a local or state level home energy certification or audit program.

Reduced LLPA

Fannie Mae provides a $500 credit on energy-related improvements. This credit is given to the lender but can be passed on to the homebuyer. 

Fannie Mae Resources

Fannie Mae provides several resources to help prospective homebuyers and homeowners interested in refinancing.

HomePath App

The HomePath app gives homebuyers an easy way to find Fannie Mae’s foreclosed-upon properties for sale. 

You can download the app here if it interests you:

• iOs – https://apps.apple.com/us/app/fannie-mae/id1530264400?ign-itscg=30200&ign-itsct=apps_box
• Android –  https://play.google.com/store/apps/details?id=com.fanniemae.mobile.kyo

Homeowner Education Courses

Fannie Mae requires that borrowers (at least one of the borrowers if there is more than one) complete a homeowner education course in order to get a Fannie Mae loan. All homeowner education courses must be completed before closing.

• For HomeReady, 97% LTV, MH Advantage, HomeStyle Renovation, HomePath and HomeStyle Energy loans: https://educate.frameworkhomeownership.org/ 
• For HFA Preferred loans: Contact your HFA for their education requirements. These must be provided by a HUD-approved agency.
• For Community Seconds loans: Contact your Community Seconds lender or down payment assistance program for education requirements. These must be provided by a HUD-approved agency.

Mortgage Loan Lookup

Area Median Income/Loan Limit Tool

*See How to Determine Loan Limits for High-Cost Areas in the U.S. for more information. 

Income Eligibility Tool

Mortgage Calculators

The calculators include a:

• Mortgage calculator
• Affordability calculator
• Debt-to-income (DTI) calculator
• Down payment savings calculator
• Refinance calculator
• Loan-to-value (LTV) calculator
• Repayment plan calculator
• Extra payment calculator

Financial Checklist

Finally, Fannie Mae offers an online financial checklist that prospective homeowners can download to help them organize their financial information before they apply for a Fannie Mae loan.