What is Fannie Mae: FNMA Enhancements You Should Know About

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What is Fannie Mae: FNMA Enhancements You Should Know About

Fannie Mae, a government-sponsored enterprise (GSE), plays a crucial role in the housing market by purchasing mortgage loans and providing liquidity. This article dives into the history of Fannie Mae, its position in the mortgage market, and the various loan programs it offers.

Whether you're a potential homebuyer, a homeowner looking to refinance, or someone seeking assistance, understanding Fannie Mae's diverse range of programs is essential for navigating the real estate landscape.


What is Fannie Mae?


Fannie Mae operates as a government-sponsored enterprise (GSE) involved in acquiring mortgage loans from smaller banks or credit unions. It guarantees or backs these loans for people with low to medium incomes in the mortgage market. Afterward, these mortgages are grouped and sold as mortgage-backed securities to investors. It helps keep the mortgage markets flowing smoothly and ensures enough affordable housing options are available.


History of Fannie Mae


Established in 1938 by Congress as a Government-Sponsored Enterprise (GSE), Fannie Mae aimed to make housing more affordable. Before that, securing a mortgage usually demanded a down payment of 50% or more, with stringent terms that allowed lenders to reclaim homes for even a single missed payment.


Fannie Mae faced growth and challenges after going private in 1968 through congressional-chartered shareholder investment. The economic downturn in the late 2000s led to its government conservatorship by the Federal Housing Finance Agency (FHFA) in 2008. Delisted from stock exchanges in 2010, Fannie Mae receives financial support from the FHFA under specific circumstances in exchange for preferred stock.


How Do Fannie Mae (FNMA) Loans Work?


Getting a mortgage through Fannie Mae is a process that takes time. Fannie Mae itself doesn't issue loans. Instead, banks and non-bank lenders handle the entire procedure. They collect your application, assess your eligibility by verifying income, assets, and property value through underwriting, and guide you to the closing table. Once the loan is successfully closed, Fannie Mae purchases loans from these lenders that meet its specific requirements.


Fannie Mae Conforming Loan Limits


Fannie Mae adheres to conforming loan limits set by the FHFA. These mortgages, known as conforming mortgages, come with Fannie Mae's guarantee. If a borrower defaults, Fannie Mae ensures investors are compensated. These loans are bundled into mortgage-backed securities (MBS) and sold on the bond market. An MBS may include over 1,000 loans with similar traits.

Fannie Mae has strict rules and avoids purchasing non-conforming loans. A common factor making loans non-conforming is jumbo loan status, which applies to loans above $726,200 for 1-unit properties in non-high-cost areas in 2022.


Fannie Mae Loan Requirements


When aiming for a Fannie Mae loan, these key factors come into play:

  • Credit Score: A qualifying FICO® Score of at least 620 is needed for loan approval. The average of their median credit scores is considered if there are multiple borrowers.
  • Debt-to-Income Ratio (DTI): Typically, your DTI should not exceed 50%, though it might need to be lower based on your situation.
  • Down Payment: Down payment requirements vary; a 1-unit primary residence can range from 3% to 5%. Second homes and investment properties generally require higher down payments.
  • Reserves: Lenders prefer to see reserves in your account to cover at least 2 to 6 months of mortgage payments in case of financial challenges.


Fannie Mae Mortgage Programs


Fannie Mae acts as a mortgage investor, offering programs to assist many individuals, including prospective homebuyers, existing homeowners, and even renters.


The HomeReady® program is designed for first-time and repeat homebuyers, offering flexibility in purchasing a home, refinancing to lower your rate, or adjusting your loan term. With a minimal down payment requirement of just 3% or in existing equity, it provides accessibility to homeownership. Targeted at clients with low-to-moderate incomes, participants on the loan cannot exceed 80% of the area median income. However, Fannie Mae offers an alternative with 3% down and no income limits, provided at least one client is a first-time homebuyer. This program opens doors to homeownership by combining affordability and accessibility.


HomePath® is Fannie Mae's platform, where it showcases foreclosed properties, also known as Real Estate Owned (REO) properties, that it has acquired and is now reselling. These homes are typically sold in their existing condition, requiring some renovation. However, this presents an opportunity for savvy buyers to snag a great deal.

Especially advantageous for first-time home buyers, Fannie Mae offers a HomePath Ready Buyer™ program. By choosing a Fannie Mae-owned property, you can make a down payment as low as 3% and receive up to 3% back in closing-cost assistance through seller concessions. To qualify, you'll need to participate in a homeownership education course with a $75 fee. The good news is that this cost can be reimbursed as part of your closing assistance.


The RefiNow™ program provides a solution for homeowners who face challenges in qualifying for a refinance to reduce their mortgage payments. This program is designed with more flexible debt-to-income (DTI) and home equity requirements, mainly benefiting homeowners with specific low-income qualifications.

To be eligible for RefiNow™, homeowners must experience a minimum 0.5% reduction in their interest rate, leading to an overall decrease in their mortgage payment. Additional advantages include a $500 credit for a mandatory home appraisal for qualifying individuals.

It's essential to highlight that when determining eligibility for RefiNow™, the lowest median credit score is considered, especially crucial when multiple clients are on the loan, ensuring a minimum FICO® Score of 580.


Mortgage Help Network


If you're having trouble with your monthly mortgage payment and have a loan owned by Fannie Mae, you can use the Mortgage Help Network. This program lets you collaborate with a housing counselor from the Department of Housing and Urban Development. You can discuss your situation and explore options together. The counselor acts as a go-between for you and your mortgage servicer.


Tenant-In-Place Rental Program


If you're renting a home owned by Fannie Mae that's going through foreclosure, you might have the chance to keep renting at the current market rates through the Tenant-In-Place program. Depending on your situation, you could either keep your existing lease or get the choice to sign a new one. Fannie Mae provides options like month-to-month leases or leases for a specific term.


The Bottom Line: Fannie Mae Offers a Variety of Mortgage Options


Fannie Mae provides diverse mortgage choices that bolster the real estate market and cater to the needs of prospective homebuyers and homeowners seeking to refinance.

"Mortgage Dove makes home financing convenient for every American. You can count on us to provide a home buying experience tailored to your personal needs and financial situation. We strive to give you the peace of mind that your home financing goals can be achieved.”


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