Fannie Mae Loans

Fannie Mae loans, also known as Federal National Mortgage Association loans, are government-backed entities designed to help maintain the liquidity of the United States' housing market.

About Fannie Mae Loans

What is Fannie Mae?

Fannie Mae is one of two government-sponsored enterprises and purchasers of mortgages (the other being Freddie Mac). The entity buys loans from banks and mortgage companies, providing them with a continuous flow of cash to make new loans. Freddie Mac primarily purchases loans from smaller banks and mortgage companies. Meanwhile, Fannie Mae purchases their loans from larger commercial banks.

How Does Fannie Mae Work?

Let’s say a mortgage company has $30 million for home loan origination. If the average mortgage originated by the company is $250,000, this means the company can only create 120 loans before it runs out of money. On the other hand, when mortgage companies sell off their loans, they receive money to stay in business.

When Fannie Mae purchases these mortgages, it keeps some as their own investment, and then repackage and sell off others as mortgage-backed securities to investors on the secondary market.

How Fannie Mae Benefits the Housing Market?

Fannie Mae doesn’t only benefit mortgage companies and other financial institutions—it also benefits consumers. When Fannie Mae purchases loans and increases liquidity for banks and mortgage companies, there’s more cash available to create new loans for new borrowers. This continuous availability of funds helps keep the United States. housing market stable and contributes to affordable housing.

Fannie Mae Guidelines

Although Fannie Mae is one of the largest purchasers of mortgage loans, it doesn’t buy every type of mortgage.

Fannie Mae will only buy “safe” mortgages, or more specifically, mortgages that meet their specific requirements. Any mortgage that’s held as an investment or re-sold must conform to Fannie Mae‘s guidelines. These are known as conforming loans.

In 2020, Fannie Mae will only purchase and guarantee mortgages up to a maximum loan limit of $510,400 for a single-family, one-unit property; and no more than $765,600 for a one-unit property in high-cost areas. Borrowers who need a larger loan must get a jumbo loan.

Fannie Mae also requires that borrowers have a minimum credit score of 620. The minimum down payment requirement for a conforming mortgage is 5% for a standard conventional loan, and 3% for Fannie Mae’s HomeReady mortgage program (moderate-income borrowers only).

Borrowers who put down less than 20% must pay private mortgage insurance (PMI). This insurance protects lenders in the event of default. Fannie Mae’s guidelines also limit a borrower’s debt-to-income ratio (DTI) to 43%.

Is a Fannie Mae Loan Right For You?

Our team of loan experts can help you decide which loan program will suit your home goals best.