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Understanding Fannie Mae Guidelines

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Lenders often follow Fannie Mae guidelines when they decide whether or not to approve borrowers for a conventional mortgage. Fannie Mae is a government-sponsored enterprise that fuels the U.S. mortgage market by buying and selling home loans on the secondary market.

Understanding Fannie Mae guidelines and conventional loan requirements will help you determine if a conventional financing is right for you.

What is Fannie Mae?

Fannie Mae is short for the Federal National Mortgage Association, one of two government-sponsored enterprises (GSE) that provides lenders with the cash needed to fund home loans with affordable mortgage rates. In turn, this helps add stability to the U.S. mortgage market because lenders can use the cash raised selling mortgages to Fannie Mae to fund new loans. Lenders follow a Fannie Mae eligibility matrix when underwriting conventional loans, which are any mortgages that are not backed by the federal government.

Fannie Mae dates back to the Great Depression, when nearly a quarter of American homeowners lost their homes to foreclosure. Until Fannie Mae’s creation, home loans had short repayment terms, such as five years, with large balloon payments due at the end of the term. Fannie Mae provided the financial security for lenders to offer a new type of mortgage — the long-term, fixed-rate loan — aimed at making homeownership more affordable for consumers.

Fannie Mae guidelines for conventional mortgages

Here’s a quick look at some key Fannie Mae guidelines for conventional loans.

Fannie Mae guideline type Minimum requirement
Down payment amount 3% of loan amount for primary residence (down payments can be gifted)
Credit score 620
Total debt-to-income ratio Cannot exceed 45%, with some exceptions up to 50%
Cash reserves Up to six months, depending on credit score, down payment amount, DTI ratio, occupancy type and property type
Income Two-year history of stable employment and income with exceptions possible
Loan limits $548,250 with higher amounts possible in certain parts of the country
Home value A property appraisal is typically required, but appraisal waivers may be granted in some cases
Title Title must be free of any prior ownership claims
Property types Single-family homes, one- to four-unit homes, manufactured homes attached to permanent foundations, condominiums, co-ops and planned unit developments (PUDs)
Occupancy types Owner-occupied homes, second/vacation homes, investment properties
Mortgage insurance Required with less than 20% down payment

Down payment. Fannie Mae’s HomeReady® and standard loan programs require only a 3% down payment for a single-family home. You can use your own funds or get a gift donation from a family member. To buy a second home or an investment property, you need a down payment of 10% and 20%, respectively.

Credit score. Although 620 is the minimum score, conventional borrowers may qualify for more competitive interest rates and lower private mortgage insurance premiums with a score of 680 or higher. Higher credit scores are required for investment and one- to four-unit properties.

Debt-to-income (DTI) ratio. Your DTI ratio is another measure of your ability to repay a loan. It’s calculated by dividing your total monthly recurring debt (including your new mortgage payment) by your monthly gross, income, and multiplying the result by 100 to get a percentage. Although 45% is the standard maximum, you may be approved with a DTI ratio of up to 50% if you have higher credit scores and ample mortgage reserves.

Cash reserves. Commonly called mortgage reserves, conventional lenders may want you to document that you have up to six months of payments set aside to continue paying your mortgage if you experience income loss. The amount depends on your DTI ratio, down payment and property type.

Income. Borrowers with less than a two-year employment history may be able to get a mortgage with a new job if the position is salaried and starts within 90 days of the loan closing date.

Loan limits. The Federal Housing Finance Agency (FHFA) sets loan limits each year based on changes in average home prices. As of 2021, the maximum conforming conventional limit is $548,250 for a single-family home. Higher limits, called “high-balance loans,” are available in higher-cost areas of the country.

Home value. Most homeowners will pay $300 to $400 for a home appraisal, but some may be eligible for a property inspection waiver (PIW) if they make a 20% down payment or have significant equity. On the other hand, government-backed loans require home appraisals regardless of how much you put down.

Title. Fannie Mae guidelines require the lender to review the property’s title history and ensure it’s clear of any prior ownership claims from previous owners, or from any judgments or liens, such as unpaid property taxes.

Property types. Conventional loan requirements allow you to finance a home with up to four units in a regular subdivision, a co-op, condominium building or a planned unit development (PUD). Fannie Mae offers a manufactured home loan program for manufactured homes attached to a permanent foundation.

Occupancy types. You can use a Fannie Mae loan to finance a primary or secondary residence, or an investment property. On the other hand, government-backed loans are restricted to primary homes only, in most cases.

Mortgage insurance. A big advantage of conventional mortgages over loans backed by the Federal Housing Administration (FHA) is they don’t require private mortgage insurance (PMI) with 20% equity. FHA loans require two types of mortgage insurance regardless of equity or down payment. The cost of PMI is typically between 0.15% and 1.95%, and paid as part of your monthly payment.

Pros and cons of Fannie Mae guidelines


 You won’t pay any mortgage insurance premiums if you make at least a 20% down payment.

 You can buy a primary, second or investment home.

 You can borrow more than FHA loan limits allow, which may help you more easily buy a home in a higher-cost area.

 You may be eligible for an appraisal waiver.


 You need higher credit scores than you would for an FHA loan, which has a minimum score of 500.

 You can’t make more than the median income limits if you use the low-down payment HomeReady program.

 You’ll have to wait longer to get a conventional mortgage after major credit issues like bankruptcy or foreclosure compared with government-backed loans.

 You’ll pay higher private mortgage insurance premiums than you would for FHA mortgage insurance if you have low credit scores.

How to apply for a Fannie Mae home loan

Many conventional lenders offer Fannie Mae loan products. Shop around with at least three to five different lenders to gather quotes, ideally on the same day. Request a rate lock once you’ve found a mortgage offer that fits your needs and budget.

Fannie Mae’s HomeReady program allows you to use approved down payment assistance (DPA) money if you’re low on cash for a down payment. Ask your lender if they offer the DPA program you’re interested in.

Fannie Mae guidelines if you can’t afford your mortgage payments

If hard financial times hit, lenders must follow Fannie Mae guidelines to help you find solutions to avoid foreclosure. Options may include:

Loan modifications. If you fall behind on payments or experience a sudden loss or drop in income, you can apply for a mortgage modification. Your lender will work with you to come up with a short-term or permanent solution, such as lowering your rate, extending your term or reducing the balance you owe to make your mortgage more affordable.

Forbearance. A mortgage forbearance allows you to stop making payments for a set period, and negotiate when to resume making missed payments. Many borrowers assume the only repayment option is to pay the entire past-due balance of loan payments. However, Fannie Mae guidelines for forbearance repayment allow you to:

  • Spread the repayment period out over time with higher monthly payments
  • Add the unpaid balance to the end of your loan
  • Pay the entire balance in a lump sum if you have the resources

New COVID-19 regulations

In the wake of the coronavirus pandemic, some Fannie Mae guidelines have changed, depending on how your state is handling the spread of coronavirus cases. These changes may include:

  • Employment verification. Lenders might accept email confirmation of your employment instead of a phone call if your employer’s human resources department is working remotely.
  • Self-employment documentation. If you operate a small business, lenders may ask for copies of contracts, invoices and other paperwork to confirm your business is still running and generating income.
  • Exterior-only appraisals. Some lenders may allow exterior-only appraisals, meaning the appraiser won’t inspect the inside of your home and instead relies on public records or real estate listing data to determine your home features.
  • Virtual closings. Depending on the lender, you might be able to sign closing documents with a notary at your home, or electronically via video conference. Your lender and/or closing agent will let you know about any special closing procedures.

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