FAQ: Top Trending Selling FAQs

Stocks, Stock Options, Bonds, and Mutual Funds

Vested assets in the form of stocks, government bonds, and mutual funds are acceptable sources of funds for the down payment, closing costs, and reserves provided their value can be verified. The lender must verify the borrower’s ownership of the account or asset. The value of the asset and any related documentation must meet the requirements outlined in B3-4.3-01, Stocks, Stock Options, Bonds, and Mutual Funds.

When used for the down payment or closing costs: 

• if the value of the asset is at least 20% more than the amount of funds needed for the down payment and closing costs, no documentation of the borrower’s actual receipt of funds realized from the sale or liquidation is required. Otherwise, evidence of the borrower’s actual receipt of funds realized from the sale or liquidation must be documented.

When used for reserves: 

• 100% of the value of the assets may be considered, and liquidation is not required. 

Example #1 Scenario. Total borrower funds needed to close is $30,000. Borrower has $33,400 in verified assets ($25,000 in a checking account and $8,400 in a retirement account invested in mutual funds).

Policy Direction:

1. Subtract the checking account assets of $25,000 from the total funds required to close. Evidence of liquidation is not required for these types of accounts. 

$30,000 - $25,000 = $5,000 additional funds needed.

2. Compare the $8,400 in the retirement account to the additional $5,000 of funds needed to determine if evidence of liquidation is required.

• $5,000 X 20% = $1,000.
• $5,000 + $1,000 = $6,000

Because the borrower has more than $6,000 in a retirement account, evidence of liquidation is NOT required.

Example #2 Scenario. Total borrower funds needed to close is $20,000. Borrower has $22,000 in verified assets ($2,000 in a checking account and $20,000 invested in a stock account).

Policy Direction:

1. Subtract the checking account assets of $2,000 from the total funds required to close. Evidence of liquidation is not required for these types of accounts. 

$20,000 - $2,000 = $18,000 additional funds needed.

2. Compare the $20,000 in the stock account to the additional $18,000 of funds needed to determine if evidence of liquidation is required.

• $18,000 X 20% = $3,600.
• $18,000 + $3,600 = $21,600

Because the borrower has less than $21,600 in the stock account, evidence of liquidation IS required.

The table below provides IPC limits for conventional mortgages.

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

To obtain a credit report that is compatible with DU loan casefile requirements, the borrower's present address must be within the U.S. or U.S. territories, with the exception of an Army Post Office (APO), Fleet Post Office (FPO), or Diplomatic Post Office (DPO) military address. Borrowers with foreign credit reports must be manually underwritten.

Note: Loans secured by a second home or an investment property must be underwritten in DU and receive an Approve/Eligible recommendation.

If the lender relies on credit reports from foreign countries to document borrower credit histories, the credit report must meet the requirements and standards for domestic reports, and must be completed in English or include an English translation.

Foreign Credit Reports and Credit Scores

With the exception of loan casefiles underwritten through DU, Fannie Mae permits the lender to use a credit report from a foreign country to document a borrower's credit history. If a credit score is provided with the foreign credit report it cannot be used to establish eligibility, or be delivered to Fannie Mae unless the credit score is the classic FICO, as required by B3-5.1-01, General Requirements for Credit Scores. See Section B3-5.4, Nontraditional Credit History, for requirements that apply when a loan includes a borrower without an acceptable credit score.

If at least one borrower on the loan can document a housing payment as a nontraditional credit reference, the loan has met the housing payment history requirement. The lender is not required to obtain documentation of a housing payment history for other nontraditional credit borrowers on the loan. However, the lender must still document the minimum number of nontraditional credit references required for each nontraditional credit borrower.

If two or more borrowers on a loan share the housing-related reference (for example, they are both named on the lease for the property in which they are living), that documentation counts as one nontraditional credit reference for each borrower, even if only one borrower has been making the payments.

Note: If the credit report contains a housing payment reference and it includes the required information, including payment history, then the lender may use that housing payment reference as an acceptable nontraditional credit reference.

For examples of acceptable housing payments to fulfill this housing payment history requirement, see B3-5.4-02, Number and Types of Nontraditional Credit References.

Loans underwritten through DU where a nontraditional credit history is required must include housing payments as one reference of nontraditional credit.

Loans underwritten manually are not required to have a housing payment as one reference of nontraditional credit. However, if no borrower on the loan has a housing history, a minimum of 12 months’ reserves must be documented.

No special approval is required from Fannie Mae to use the DU validation service, however, lenders must “opt-in” to validate income and employment using an asset verification report.

When a lender provides the required reports, all loans that are submitted to DU will automatically be assessed through the DU validation service for validation of the related component.

To participate in the DU validation service, the lender must

• have a relationship with, and have entered into a contract for the services provided by, a vendor(s) –either a report supplier or a report distributor – that is authorized to obtain a verification report;
• have an agreement with a vendor(s) that allows for the report supplier to share the information contained within the verification report (obtained by the lender) with Fannie Mae electronically for use by the DU validation service; and
• establish controls to manage and monitor the vendors in accordance with its own regulatory requirements.

For loans assessed by the DU validation service, the lender must

• obtain borrower authorization to receive the information from the vendor;
• confirm that the verification report matches the borrower;
• ensure information entered by the lender in DU is properly documented;
• investigate and resolve any conflicting or contradictory information;
• retain a copy of all verification reports in the loan file (see A2-4.1-01, Establishing Loan Files for details), in addition to any other documentation required by DU; and
• ensure that the most current version of the verification report is used by the DU validation service. If the lender obtains an updated verification report, the lender must resubmit the loan to DU and receive a message that the component has been validated in order for the representation and warranty enforcement relief to apply.

When employment is initially validated using an asset verification report and the loan will not close by the "Close by Date" stated in the DU employment validation message, the lender may obtain a supplemental asset report from an asset verification report vendor and perform a manual review of the report to satisfy the verbal verification of employment described in the B3-3.1-07, Verbal Verification of Employment.

When a lender performs a manual review of the supplemental asset report to reverify employment, the enforcement relief of representations and warranties related to the employment validation through the DU validation service described in the A2-2-04, Limited Waiver and Enforcement Relief of Representations and Warranties does not apply.

When used to reverify employment, the supplemental asset report must

• be obtained within the same timeframe required for a verbal verification of employment; and
• be from the same asset verification report vendor as the initial asset verification report relied upon to validate employment and include
  • the account numbers and the account holder name for each account included in the report,
  • the date of the report, and 
  • the date and deposit details of the deposits reflected on the report.

The lender must review the report to confirm

• the borrower is listed as an account holder;
• the deposit details of the direct deposits that are being used to reverify employment 
  • match the ACH details identified in the DU findings messages for the direct deposit streams used by DU to validate employment, and 
  • are consistent with the income source provided in DU;
• the pattern of receipt of the identified direct deposits used to reverify employment does not reflect missed payments, and the latest expected payment prior to the date of the report is present

The lender must not have any information indicating the borrower may no longer be employed and must investigate and resolve any conflicting or contradictory information.

All supplemental asset reports must be retained in the loan file.

Validate assets, income, and employment with a single source of data. Transform your workflow with one asset report. Lenders using Desktop Underwriter® (DU®) can now validate income and employment in addition to assets using a borrower’s asset account information, satisfying Fannie Mae’s documentation requirements for income, employment, and assets using a single source of data.

For more information, visit the Validation Using a Single Data Source page.

We have a longstanding policy on eligibility for non-U.S. citizen borrowers. Fannie Mae purchases and securitizes mortgages to non-citizens who are lawful permanent or non-permanent residents of the United States under the same terms available to U.S. citizens. This Fact Sheet provides additional guidance to help lenders determine eligibility for non-U.S. citizen borrowers.

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.

The following table provides verification of income requirements for borrowers who have less than 25% ownership of a partnership, S corporation, or limited liability company (LLC). For borrowers who have more than 25% ownership, lenders must follow the verification of income requirements for self-employed borrowers. See B3-3.2-01, Underwriting Factors and Documentation for a Self-Employed Borrower for additional information.

Income Calculator is an easy-to-use Fannie Mae-hosted service that quickly calculates income for borrowers with self-employment or business ownership consistent with Fannie Mae Selling Guide policy, so lenders can make informed underwriting decisions, reduce origination cycle times, and limit repurchase risks. Relief from enforcement of representations and warranties is provided to lenders for the accuracy of the income calculation, provided the submitted information is accurate and complete.

Mortgage professionals can access Income Calculator's web interface at: https://incomecalculator.fanniemae.com.

To learn more, view the Income Calculator web page.

For additional information, see B3-3.1-10, Income Calculator.

Increase certainty of loan quality for homebuyers with self-employed income. Calculating income for self-employed borrowers is not easy and can be time consuming and complicated for even the most seasoned originators. With a growing workforce of self-employed borrowers, and multiple options available, lenders need a clear way to calculate income that’s both accurate and efficient. With Fannie Mae’s latest solution, we offer a new way to calculate income that increases the certainty of the calculation and helps reduce cycle time. View the Income Calculator Fact Sheet.

Restricted stock units and restricted stock (referred to collectively as "restricted stock") are granted by an employer to its employees as a form of compensation based on either performance or time. They can be awarded as either stock or an equivalent cash value of the number of shares awarded and usually vest over a certain number of years. After they vest, the employee may sell the shares at the current price or hold the stock for future sale.

The following table provides verification requirements for restricted stock income.

When rental income is being used to qualify for a property placed in service in the current calendar year, for example, when converting a principal residence to an investment property, the lender is justified in using a fully executed current lease agreement to document rental income. When using the lease agreement, the lease agreement amount must be supported by 

• Form 1007 or Form 1025, as applicable, or
• evidence the terms of the lease have gone into effect. Evidence may include:
  • two months consecutive bank statements or electronic transfers of rental payments for existing lease agreements, or
  • copies of the security deposit and first month's rent check with proof of deposit for newly executed
    agreements. 

Calculating Monthly Qualifying Rental Income (or Loss)

Scenario 1: If the borrower has at least a one-year history of receiving rental income or at least one year of documented property management experience, then there are no restrictions on the amount of rental income that can be used. The lender must establish a history of property management experience by obtaining one of the following:

• The borrower’s most recent signed federal income tax return, including Schedules 1 and E. Schedule E should reflect rental income received for any property and Fair Rental Days of 365;
• If the property has been owned for at least one year, but there are less than 365 Fair Rental Days on Schedule E, a current signed lease agreement may be used to supplement the federal income tax return; or
• A current signed lease may be used to supplement a federal income tax return if the property was out of service for any time period in the prior year. Schedule E must support this by reflecting a reduced number of days in use and related repair costs. Form 1007 or Form 1025 must support the income reflected on the lease.

Scenario 2: If the borrower has less than one-year history of receiving rental income from the related property or documented property management experience, rental income can only be used to offset the PITIA of the related property (in other words, is limited to zero positive cash flow).

In addition, the borrower must be qualified in accordance with, but not limited to, the policies in topics B3-4.1-01, Minimum Reserve Requirements, and, if applicable B2-2-03, Multiple Financed Properties for the Same Borrower.

For complete topic details, see B3-3.1-08, Rental 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.

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.

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/.  

Fannie Mae’s Selling Guide does not include a recency requirement in which a student loan tradeline must be updated for DU to evaluate the liability. If, during the processing of the loan, the lender becomes aware that the borrower has missed payments and those payments were not considered delinquent by the loan servicer due to the Department of Education’s on-ramp forbearance program the lender is not required, for DU purposes, to consider those payments past due either. The lender must include a qualifying payment in accordance with B3-6-05, Monthly Debt Obligations.

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.

For additional information on student loan payments, see B3-6-05, Monthly Debt Obligations.