How Do Fannie Mae (FNMA) Loans Work?
Because Fannie Mae doesn’t originate loans, you can’t get your mortgage directly from this GSE. Banks and non-bank lenders like Rocket Mortgage® are responsible for collecting a client’s application, underwriting the loan – by verifying income, assets and property value – and getting them to the closing table. Once the loan closes, Fannie Mae buys loans that meet its requirements from lenders.
Fannie Mae Conforming Loan Limits
The FHFA sets requirements for Fannie Mae called conforming loan limits. These mortgage loans, known as conforming mortgages, are guaranteed by Fannie Mae. This means they’ll make investors whole if the borrower goes into default. Fannie Mae packages these loans into mortgage-backed securities (MBS) before selling them on the open bond market to investors.
An MBS might consist of 1,000 loans or more that have similar characteristics. Fannie Mae has certain rules, among them that they won’t buy non-conforming loans. Many components can make a loan nonconforming, but one of the most common characteristics is jumbo loan status, which for 2024 is any loan above $766,550 for single-unit properties in non-high-cost areas, such as locations outside of Alaska, Guam, Hawaii and the U.S. Virgin Islands.
Fannie Mae Loan Requirements
You should always feel free to speak with a Home Loan Expert about your situation, but the following is a short list of general guidelines for Fannie Mae loan approval:
Credit Score
Your credit score plays a role in the loan approval process. With loans from either Fannie Mae or its competitor Freddie Mac, you’ll need a qualifying FICO® Score of at least 620. If you're an individual borrower, your qualifying score is the median between the three major credit bureaus – Experian™, Equifax® and TransUnion®. Something that's unique to Fannie Mae loans is that if there are two or more borrowers on the loan, the average of the median credit scores becomes your qualifying credit score for the purposes of getting a mortgage.
Debt-To-Income Ratio (DTI)
Your debt-to-income ratio (DTI), which compares your monthly debt payments to your before-tax monthly income, should be no higher than 50% in most cases to qualify for a Fannie Mae loan. This may need to be lower depending on your situation.
Down Payment
For second homes and investment properties, the down payment requirements are higher, but for a single-unit primary residence, the down payment needed could be anywhere from 3% – 6%.
Reserves
Reserves represent the number of mortgage payments lenders want to see in your account in case you experience a loss of income or other financial hardship. Your reserves could be up to 6 months with a Fannie Mae loan, although 2 months is generally a good starting point.
Reserves are not generally required for a primary residence – only second homes and investment properties unless there are other risks in the profile.
Fannie Mae Mortgage Programs
Fannie Mae is a mortgage investor, but they have programs that are intended to help everyone from home buyers to current homeowners and even renters.
HomeReady®
Available for both first-time and repeat home buyers, the HomeReady® program allows you to buy a home, refinance to lower your rate and/or change your loan term with as little as 3% down or in existing equity.
Because it’s intended to help clients with low-to-moderate incomes, those on the loan can’t make more than 80% of the area median income between them. Fannie Mae does have an option to have 3% down without income limits, but at least one client must be a first-time home buyer.
The HomeReady®program has a $2,500 credit that goes toward closing costs if you make half the area median income or less where you're looking to buy. If your income is between 50% – 80% of the area median, the credit is $2,000.
HomePath
HomePath® is the site where Fannie Mae features foreclosures that it’s taken possession of to resell, also known as real estate owned (or REO) properties. You have to know what you’re getting into when buying a foreclosed property because they’re typically sold as is and they often require some work. However, you may be able to get a good deal.
97% LTV Program
The 97% LTV program allows home buyers to put as little as 3% down on a home, resulting in a loan-to-value ratio of 97%. These loan options are available to first-time home buyers and those refinancing a Fannie Mae loan. Requirements for income limits and home buyer education must be met in order to qualify.
RefiNow™
The RefiNow™ program offers options for homeowners who have experienced difficulty qualifying for a refinance to lower their mortgage payments in the past. RefiNow™ has looser requirements around DTI and home equity, which serves homeowners who meet certain low-income thresholds.
Eligible homeowners for the RefiNow™ program need to see at least a 0.5% reduction in their interest rate and their overall mortgage payment has to decrease. There are other benefits of the RefiNow™ program, including that those who qualify will receive a $500 credit toward a home appraisal, if the appraisal is mandatory.
It's important to note that when qualifying for RefiNow™, the lowest median credit score is used for qualifying even when there are multiple clients on the loan. The lowest median FICO® Score among all borrowers on the loan can't be lower than 580.
HFA Preferred™
HFA Preferred™ is an affordable lending product that Fannie Mae issues in conjunction with Housing Finance Agencies (HFAs). These loans feature flexible underwriting requirements such as LTV ratios of up to 97%, borrower income limits set by the HFA and reduced mortgage insurance coverage for those at or below 80% area median income.
Mortgage Help Network
If for any reason you’re struggling with your monthly mortgage payment, homeowners with Fannie Mae-owned loans can utilize the Mortgage Help Network. This program allows homeowners to work with a Department of Housing and Urban Development (HUD) housing counselor in order to go over the situation, look at options and serve as a liaison between homeowners and a mortgage servicer.
If you’re a Rocket Mortgage client who’s having or may soon be having payment trouble, please feel free to reach out to us by filling out our Application for Success. We’re here to help!
Tenant-In-Place Rental Program
If you’re a tenant in a Fannie Mae-owned property that’s currently being foreclosed upon, you may be able to continue renting at current market rates with the Tenant-In-Place program.
In certain cases, you may be able to keep your current lease. In others, you may be given the option to sign a new lease agreement. Fannie Mae offers include month-to-month leases as well as those that are good for a specific term.
