FAQ: Top Trending Selling FAQs

A rent back credit may appear on the Closing Disclosure as a credit to the borrower. In all cases, the lender must underwrite the loan without any consideration of the rent back credit and must document the borrower has sufficient funds for the transaction from eligible sources.

The table below provides IPC limits for conventional mortgages.

For additional information, see B3-4.1-02, Interested Party Contributions (IPCs).

See the most recent Condo Project Manager™ (CPM™) Release Notes for details.

CPM updates covered in these release notes include the following:

• CPM IDs were updated to be consistent in length (6 digits for Project IDs and 9 digits for Phase IDs).
• Correspondent lenders that are not Fannie Mae approved Seller/Servicers can now request access to CPM to complete the required project review.
• Loan Delivery edits switched to a “warning” status.

As a reminder, lenders will be required to use CPM for loan applications dated on and after July 1, 2023 and sold to us using the Full Review process to determine project eligibility.

View the entire Release Notes.

Click here to find answers to commonly asked questions about Condo Project Manager™ (CPM™).

This FAQ document provides responses to common questions related to Fannie Mae’s project review methods and policies for determining project eligibility for mortgages secured by units in condo, co-op, and planned unit development (PUD) projects. Click here to access the FAQs.

The sales contract may include a rent back agreement in a purchase money transaction, however, if the loan is owner-occupied, the borrower must occupy the property within 60 days of closing as noted in the security instrument. See related Top Trending FAQ: How is a rent back credit treated for qualifying purposes?

Borrowers who purchased the subject property within the past six months (measured from the date on which the property was purchased to the disbursement date of the new mortgage loan) are eligible for a cash-out refinance if all of the following requirements are met.

For additional information, see B2-1.3-03, Cash-Out Refinance Transactions.

An accessory dwelling unit (ADU) is typically an additional living area independent of the primary dwelling that may have been added to, created within, or detached from a primary one-unit dwelling. The ADU must provide for living, sleeping, cooking, and bathroom facilities and be on the same parcel as the primary one-unit dwelling. For additional information on ADU requirements, construction, examples, and zoning see B2-3-04, Special Property Eligibility Considerations.

A transaction that requires one owner to buy out the interest of another owner (for example, as a result of a divorce settlement or dissolution of a domestic partnership) is considered a limited cash-out refinance if the secured property was jointly owned for at least 12 months preceding the disbursement date of the new mortgage loan. 

All parties must sign a written agreement that states the terms of the property transfer and the proposed disposition of the proceeds from the refinance transaction. Except in the case of recent inheritance of the subject property, documentation must be provided to indicate that the security property was jointly owned by all parties for at least 12 months preceding the disbursement date of the new mortgage loan.

Borrowers who acquire sole ownership of the property may not receive any of the proceeds from the refinancing. The party buying out the other party’s interest must be able to qualify for the mortgage pursuant to Fannie Mae’s underwriting guidelines.  

For more information, see B2-1.3-02, Limited Cash-Out Refinance Transactions. 

This depends on how the deferred balance is secured:

• a limited cash-out refinance transaction is acceptable when the deferred balance is included in the payoff amount of the existing first mortgage.
• a cash-out refinance transaction is required if the deferred balance is secured by a subordinate lien, as proceeds from a limited cash-out refinance transaction cannot be used to pay off a subordinate lien that was NOT used to purchase the property. The exception to this is when paying off PACE loans and other debt used for energy-related improvements, see B5-3.3-01, HomeStyle Energy for Improvements on Existing Properties.

For additional information, see B2-1.3-02, Limited Cash-Out Refinance Transactions.

Effective June 12, 2023, the 2023 area median income estimates (AMIs) were implemented in Desktop Underwriter® (DU®), HomeReady® Application Programming Interfaces (API), Loan Delivery, the Area Median Income Lookup Tool, and published on the HomeReady®, RefiNow®, and Duty to Serve pages. View the Selling Notice for complete information.

The Eligibility Matrix provides the comprehensive LTV, CLTV, and HCLTV ratio requirements for conventional first mortgage loans eligible for delivery to Fannie Mae. The Eligibility Matrix also includes credit score, minimum reserve requirements (in months), and maximum debt-to-income ratio requirements for manually underwritten loans. Other eligibility criteria that are not covered in the Eligibility Matrix may be applicable for loans to be eligible for delivery to Fannie Mae, e.g., allowable ARM plans. See the Selling Guide for details.

A minimum history of two years of employment income is recommended. However, income that has been received for a shorter period of time may be considered as acceptable income, as long as the borrower’s employment profile demonstrates that there are positive factors to reasonably offset the shorter income history.

Borrowers relying on overtime or bonus income for qualifying purposes must have a history of no less than 12 months to be considered stable.

For additional information, see B3-3.1-03, Base Pay (Salary or Hourly), Bonus, and Overtime Income. For income and employment documentation requirements for DU, see B3-3.5-01, Income and Employment Documentation for DU.

Fannie Mae's underwriting guidelines emphasize the continuity of a borrower’s stable income. The stable and reliable flow of income is a key consideration in mortgage loan underwriting. Individuals who change jobs frequently, but who are nevertheless able to earn consistent and predictable income, are also considered to have a reliable flow of income for qualifying purposes.   

To demonstrate the likelihood that a consistent level of income will continue to be received for borrowers with less predictable sources of income, the lender must obtain information about prior earnings. Examples of less predictable income sources include commissions, bonuses, substantial amounts of overtime pay, or employment that is subject to time limits, such as contract employees or tradesmen. 

For additional information on income and employment requirements, see B3-3.1-01, General Income Information and B3-3.1-03, Base Pay (Salary or Hourly), Bonus, and Overtime Income.

A minimum history of two years of employment income is recommended. However, income that has been received for a shorter period of time may be considered as acceptable income, as long as the borrower’s employment profile demonstrates that there are positive factors to reasonably offset the shorter income history. 

Borrowers relying on overtime or bonus income for qualifying purposes must have a history of no less than 12 months to be considered stable.

Obtain the following documents:

• a completed Form 1005 or Form 1005(S), or
• the borrower’s recent paystub and IRS W-2 forms covering the most recent two-year period.

See B3-3.1-01, General Income Information, for additional information on calculating variable income (applies to hourly paid employees with fluctuating hours and bonus and overtime).

If the borrower has recently changed positions with his or her employer, determine the effect of the change on the borrower’s eligibility and opportunity to receive bonus or overtime pay in the future. See B3-3.1-02, Standards for Employment Documentation, for additional information.

The following table provides verification requirements for retirement, government annuity, and pension income.

If a borrower’s retirement, annuity, or pension income is validated by the DU validation service, DU will issue a message indicating the required documentation. This documentation may differ from the requirements described above. For additional information, see B3-2-02, DU Validation Service and B3-3.1-09, Other Sources of Income.

All income that is calculated by an averaging method must be reviewed to assess the borrower’s history of receipt, the frequency of payment, and the trending of the amount of income being received. Examples of income of this type include income from hourly workers with fluctuating hours, or income that includes commissions, bonuses, or overtime. 

History of Receipt: Two or more years of receipt of a particular type of variable income is recommended; however, variable income that has been received for 12 to 24 months may be considered as acceptable income, as long as the borrower’s loan application demonstrates that there are positive factors that reasonably offset the shorter income history. 

Frequency of Payment: The lender must determine the frequency of the payment (weekly, biweekly, monthly, quarterly, or annually) to arrive at an accurate calculation of the monthly income to be used in the trending analysis (see below). Examples: 

• If a borrower is paid an annual bonus on March 31st of each year, the amount of the March bonus should be divided by 12 to obtain an accurate calculation of the current monthly bonus amount. Note that dividing the bonus received on March 31st by three months produces a much higher, inaccurate monthly average. 
• If a borrower is paid overtime on a biweekly basis, the most recent paystub must be analyzed to determine that both the current overtime earnings for the period and the year-to-date overtime earnings are consistent and, if not, why. There are legitimate reasons why these amounts may be inconsistent yet still eligible for use as qualifying income. For example, borrowers may have overtime income that is cyclical (transportation employees who operate snow plows in winter, package delivery service workers who work longer hours through the holidays). The lender must investigate the difference between current period overtime and year-to-date earnings and document the analysis before using the income amount in the trending analysis. 

Income Trending: After the monthly year-to-date income amount is calculated, it must be compared to prior years’ earnings using the borrower’s W-2’s or signed federal income tax returns (or a standard Verification of Employment completed by the employer or third-party employment verification vendor). 

• If the trend in the amount of income is stable or increasing, the income amount should be averaged. 
• If the trend was declining, but has since stabilized and there is no reason to believe that the borrower will not continue to be employed at the current level, the current, lower amount of variable income must be used. 
• If the trend is declining, the income may not be stable. Additional analysis must be conducted to determine if any variable income should be used, but in no instance may it be averaged over the period when the declination occurred. 

For additional information, see B3-3.1-01, General Income Information.

If the borrower is scheduled to begin employment under the terms of an employment offer or contract, the lender may deliver the loan in accordance with one of the options outlined under Employment Offers or Contracts in B3-3.1-09, Other Sources of Income.

While every effort is made to include requirements for employment that generates income, some sources of income exist that may be variable in nature (such as per diem earnings or expense stipends) and are not specifically addressed in the Selling Guide.  As a result, the lender must evaluate and document the income in accordance with the policies in B3-3.1-01, General Income Information.  The documentation must support the income as stable, predictable and likely to continue. 

Reimbursements for expenses (e.g., work-related supplies, travel, meals, and entertainment), are not considered wages as they are provided to the borrower for the purpose of offsetting a specific expense incurred while performing a service for the employer. When income is provided for discretionary use, not for the purpose of offsetting a specific expense, the lender can evaluate the income according to B3-3.1-01, General Income Information.

In order for non-mortgage and mortgage debt to be excluded from the debt-to-income (DTI) ratio, the other party cannot be an interested party to the subject transaction and has to pay the complete monthly obligation every month for a minimum of 12 months.

 For mortgage debt, the following additional requirements must be met:

• the party making the payments is obligated on the mortgage debt,
• there are no delinquencies in the most recent 12 months, and
• the borrower is not using rental income from the applicable property to qualify.

 All other requirements of Debts Paid by Others in B3-6-05, Monthly Debt Obligations must be met.

When the debt is being paid by more than one party, lenders need to use prudent underwriting judgment to determine payments are consistently being made in accordance with Debts Paid by Others, B3-6-05, Monthly Debt Obligations in order to exclude the debt from the borrower’s DTI ratio.

The lender may use discretion in the documentation obtained to support that the business debt is paid out of company funds. An example of acceptable documentation used in the Selling Guide is 12 months of canceled company checks. For complete policy requirements, refer to Business Debt in Borrower's Name in B3-6-05, Monthly Debt Obligations.

When a debt is paid by another party, it may be excluded from the DTI ratio with a demonstrated history of consistent payments over the most recent 12 months in accordance with the requirements outlined in Debts Paid by Others, B3-6-05, Monthly Debt Obligations. If there was an interruption in the payment history due to a loan refinance or trade-in, lenders must exercise their own judgment to determine whether the combined payment histories meet these requirements, including considering whether

• the documentation provided supports the concurrent transactions (prior account closed and new account open) with the same obligors and payor(s), and
• the new payment is substantially similar to the previous payment with minimal gap between the two loans.

If the debt has been fully forgiven, cancelled, or discharged as of the closing date of the mortgage loan, the lender must provide documentation to show the loan was forgiven in full and no payments are owed from the borrower.

If the debt has been partially forgiven, cancelled, or discharged as of the closing date of the mortgage loan, the lender must provide documentation confirming the new loan balance and may calculate the monthly payment based on: 

• a payment equal to 1% of the outstanding student loan balance (even if this amount is lower than the actual fully amortizing payment), or
• a fully amortizing payment using the documented loan repayment terms.

If the documentation does not provide the new monthly payment, the lender may calculate the payment. 

Please click here for additional information regarding the Student Debt Relief Plan and its potential impact on borrowers with federal student loan debt.

For deferred student loans or student loans in forbearance, the lender may calculate

• a payment equal to 1% of the outstanding student loan balance (even if this amount is lower than the actual fully amortizing payment), or
• a fully amortizing payment using the documented loan repayment terms.

Additionally, if a borrower has more than one student loan, the lender may combine the unpaid principal balances of all student loans to estimate or calculate the total qualifying payment. 

No, payments in deferment or forbearance may not be excluded for qualifying. If the student loan is in deferment or forbearance and the credit report payment amount is missing (or $0), lenders must calculate a qualifying payment by either using 1% of the outstanding student loan balance or a fully amortizing payment using the documented loan repayment terms. Additionally, if the student loan is in deferment or forbearance and the credit report reflects a monthly payment (even if this payment is an estimated payment amount), lenders may use this payment to qualify the borrower.  For details on the various repayment options for federal student loans, including definitions of deferment and forbearance, see https://studentaid.ed.gov/.  

If a monthly student loan payment is provided on the credit report, the lender may use that amount for qualifying purposes. If the credit report does not reflect the correct monthly payment, the lender may use the monthly payment that is on the student loan documentation (the most recent student loan statement) to qualify the borrower.  

If the credit report does not provide a monthly payment for the student loan, or if the credit report shows $0 as the monthly payment, the lender must determine the qualifying monthly payment using one of the options below. 

• If the borrower is on an income-driven payment plan, the lender may obtain student loan documentation to verify the actual monthly payment is $0. The lender may then qualify the borrower with a $0 payment. 
• For deferred loans or loans in forbearance, the lender may calculate 
  • a payment equal to 1% of the outstanding student loan balance (even if this amount is lower than the actual fully amortizing payment), or
  • a fully amortizing payment using the documented loan repayment terms.

For student loans associated with an income-driven repayment (IDR) plan, the student loan payment, as listed on the credit report, is the actual payment the borrower is making and that payment should be used in qualifying. Any future increases in the IDR payment will be tied to similar increases in the student’s income, mitigating concerns that IDR payments may create payment shock.

DU may offer value acceptance on loans secured by rental or investor properties when the rental income is not used to qualify borrowers for the loan. If rental income is used to qualify, the Single-Family Comparable Rent Schedule (Form 1007) is required. Because this form can only be completed in conjunction with an appraisal, DU will not offer value acceptance in those cases.

When rental income is not used to qualify, the lender can provide the alternative income documentation to document the rental income for lender reporting purposes (see Selling Guide B3-3.1-08, Rental Income). These alternatives do not require an appraisal, so value acceptance may be offered and accepted.

As part of the risk analysis, DU assesses the reasonableness of the lender’s estimated value for the property and recommends the minimum level of collateral due diligence that must be performed for the loan to be delivered to Fannie Mae.

Loan casefiles that are eligible for value acceptance will receive a message indicating the availability of value acceptance. (See message text below.)

DU accepts the value submitted by the lender for this subject property. To exercise the value acceptance
(appraisal waiver) offer with representation and warranty relief on the value, condition, and marketability of the subject property, the loan delivery file must include the Casefile ID and Special Feature Code 801. If the value acceptance (appraisal waiver) offer is not exercised, an appraisal is required for this transaction and the loan cannot be sold with Special Feature Code 801. Note that DU does not identify all value acceptance (appraisal waiver) ineligible transactions, including Texas Section 50(a)(6) mortgages; always refer to the Selling Guide to verify eligibility.

Example: A lender submits a loan casefile to DU and receives a message indicating the availability of a value acceptance offer and the need for an appraisal based on an interior and exterior property inspection if the offer is not exercised. The lender can either (a) obtain the interior and exterior appraisal or (b) exercise value acceptance offer.

Yes. There may be certain situations in which a lender needs to obtain an appraisal, even though value acceptance was offered on the loan casefile.

Examples of when an appraisal would need to be obtained include the following:

• The loan is a Texas Section 50(a)(6) mortgage. (DU cannot identify Texas Section50(a)(6) mortgages so it may issue an invalid value acceptance offer).
• The lender has reason to believe that fieldwork is warranted because the sales contract for a purchase transaction stipulates repairs that are not minor, or that may affect the safety, soundness, or structural integrity of the property.
• The lender is required by law to obtain an appraisal.
• The property is a leasehold property.
• The property is in a community land trust or has certain other resale restrictions.
• The mortgage insurance provider requires an appraisal.

When an appraisal is obtained, the value acceptance offer may not be exercised, and the loan cannot be delivered with SFC 801.

A lender may only exercise value acceptance (appraisal waiver) if:

• the final submission of the loan casefile to DU resulted in a value acceptance (appraisal waiver) offer, 
• an appraisal is not obtained for the transaction, and 
• the value acceptance (appraisal waiver) offer is not more than four months old on the date of the note and the mortgage. 

Lenders that elect to exercise value acceptance (appraisal waiver) must include SFC 801 at delivery. Lenders may not adversely select against Fannie Mae in determining which value acceptance (appraisal waiver) offers to accept. Fannie Mae may monitor the lender’s exercise of value acceptance (appraisal waiver) offers and delivery of loans to Fannie Mae, and may take appropriate measures if adverse selection is identified. 

For more information, see B4-1.4-10, Value Acceptance (Appraisal Waiver).

Value acceptance + property data is value acceptance with the additional required step of obtaining a property data collection. See Selling Guide B4-1.4-11, Value Acceptance + Property Data for details.