Mortgage seekers may be told they must meet the requirements of Fannie Mae. Fannie Mae, which stands for the Federal National Mortgage Association, does not do direct loans to borrowers, but it does provide money to the "secondary market," or lenders. Fannie Mae loan guidelines are not as strict as others, such as those for loans backed by the Federal Housing Administration (FHA). However, Fannie Mae borrowers must still meet credit score, income-to-debt ratio, and other requirements. Borrowers must show verification of two years of employment and must document assets and liabilities.
About Fannie Mae
Fannie Mae was created in 1938 by an act of Congress. Its original purpose was to maintain stability in the housing market after the Great Depression. In 1968, it became a private company and Congress mandated that it operate with private capital and be self-sustaining. It is, however, still operated by the federal government. Fannie Mae only underwrites loans intended for individuals, not corporations or general partnerships.
Credit Score Requirements
For most loans, borrowers must have a minimum FICO credit score of 620, but borrowers with credit scores above 740 receive the most favorable interest rates and terms.
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Debt-to-income ratio is calculated by dividing total monthly payments on debt such as auto loans and credit cards by total monthly gross income. For example, if your total monthly debt is $2,000, and your total monthly income is $6,000, your debt-to-income is 33 percent. Under the guidelines in place as of 2015, borrowers can have a debt-to-income ratio of up to 45 percent.
Fannie Mae sets loan limits each year according to the Federal Housing Finance Board's October single-family price survey. In 2015, the general loan limit for a single-family home was $417,000 except in Alaska, Hawaii, and the U.S. Virgin Islands, where it was $625,500. As of 2015, the loan limits were even higher in 46 counties. Loans under general amount are called "qualifying" or "conforming" and generally feature lower interest rates than "jumbo" or "non-conforming" loans above that amount.
Bankruptcy and Foreclosure
Borrowers who have filed for Chapter 7 or 13 bankruptcy, aren't eligible for a Fannie Mae mortgage until four years from the date the bankruptcy was discharged. Borrowers with a foreclosure must wait seven years from its completion date, and those with short sales must wait four years.