FAQ: Top Trending Selling FAQs

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These are the top trending underwriting and eligibility questions customers have asked us. Visit Ask Poli® to see trending content, find more answers, filter content by topic, and view recently added questions.

FAQs updated April 3, 2024

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Asset Assessment

  • Q1.
    How is a rent back credit treated for qualifying purposes?

    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.

  • Q2.
    What are the maximum interested party contributions limits?

    The table below provides IPC limits for conventional mortgages.

    IPCs that exceed these limits are considered sales concessions. The property’s sales price must be adjusted downward to reflect the amount of contribution that exceeds the maximum, and the maximum LTV/CLTV ratios must be recalculated using the reduced sales price or appraised value.

    Occupancy Type LTV/CLTV Ratio Maximum IPC
    Principal residence or second home Greater than 90% 3%1
    75.01% – 90% 6%
    75% or less 9%
    Investment property All CLTV ratios 2%
    1. See B5-4.2-03, Loans Secured by HomePath Properties (05/31/2016) for an exception to this limit for principal residence transactions.

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

DU Validation Service

  • Q1.
    What is required for a lender to participate in the DU validation service?

    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.
  • Q2.
    When can an asset verification report be used as an alternative to a verbal verification of employment?

    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.

  • Q3.
    Where can I learn about DU Single Source Data Validation?

    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.

Eligibility Assessment

  • Q1.
    Can the sales contract include a rent back agreement in a purchase money transaction?

    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?

  • Q2.
    What are the eligibility requirements for non-U.S. citizen borrowers?

    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.

  • Q3.
    Where can I find the Eligibility Matrix?

    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.

Income Assessment

  • Q1.
    If the borrower has less than 25% business ownership, and receives a Schedule K-1, can the income be used to qualify?

    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.

    Verification of Schedule K-1 Income

    The borrower must provide the most recent two years of

    • signed individual federal income tax returns, and
    • IRS Schedule K-1.

    Income reported on Schedule K-1 can only be considered if the lender obtains documentation verifying that

    • the income was actually distributed to the borrower and is consistent with the level of business income being used to qualify, or
    • the business has adequate liquidity to support the withdrawal of earnings. The lender may use discretion in the method used to confirm the business has adequate liquidity.
      The lender is not required to analyze the viability of the business in accordance with self-employment requirements and may only use the borrower's proportionate share of earnings reflected on Schedule K-1 when calculating the borrower's income.
      If the borrower has a two-year history of receiving “guaranteed payments to the partner” from a partnership or an LLC, these payments can be added to the borrower’s cash flow.

    Note: An exception to the two-year requirement of receiving “guaranteed payments to the partner” is if a borrower has recently acquired nominal ownership in a professional services partnership (for example, a medical practice or a law firm) after having an established employment history with the partnership. In this situation, the lender may rely on the borrower’s guaranteed compensation. This must be evidenced by the borrower’s partnership agreement and further supported by evidence of current year-to-date income.

  • Q2.
    What is required to use income from restricted stock units or restricted stock?

    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.

    Verification of Restricted Stock Income

    To be used as qualifying income, the restricted stock must have vested and been distributed to the borrower without restrictions.

    For performance-based awards: A minimum history of 24 months restricted stock income from the current employer is recommended. Restricted stock income received for 12 to 24 months from the current employer may be considered as acceptable income if there are positive factors to offset the shorter income history such as

    • future vesting equal to or greater than previous vesting and that will continue for at least 24 months; or
    • restricted stock income received for the previous 5 years from any employer.

    For time-based awards: A minimum history of 12 months restricted stock income from the current employer is required.

    The lender must confirm continuance of income per Continuity of Income in B3-3.1-01, General Income Information.

    Note: Sign-on bonuses received in the form of restricted stock that vest over any length of time cannot be considered by the lender as qualifying income.


    The lender must document all the following:

    • evidence stock is publicly traded;
    • current vesting schedule reflecting past and future vesting;
    • brokerage or bank statement showing receipt of previous year(s) distribution of restricted stock and, at a minimum, the number of vested shares or cash equivalent;
    • a completed Request for Verification of Employment (Form 1005) that shows restricted stock distributions, or the borrowers recent paystub showing receipt of restricted stock income; and
    • the borrower's IRS W-2 forms covering the most recent two-year period.

    The calculation method for restricted stock income will vary depending on whether payment is made in shares or cash.

    For income paid in shares

    • (200-Day Moving Average of share price x total number of distributed vested shares (pre-tax) in most recent 24 months) / 24 months

    For income paid in cash:

    • Total cash distributed (pre-tax) equal to the total value of vested shares in the most recent 24 months / 24 months

    Note: When the borrower has a history of income ranging from 12-24 months, the lender must use the actual number of months the borrower has received the income rather than 24 months.

  • Q3.
    When can per diem earnings, expense stipends, and reimbursement for expenses be used as 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.

  • Q4.
    What are the lender requirements when the Fannie Mae Income Calculator is used?

    Fannie Mae offers use of the Income Calculator as an optional tool to assist lenders in calculating qualifying income that is documented using tax returns. This tool can be used for loans underwritten manually or through DU. 

    Enforcement Relief of Representations and Warranties for Loans with Income Calculated by Income Calculator

    Income Calculator provides a complete analysis of self-employment income for each borrower on a business-by-business basis and produces a Findings Report. If lenders comply with the following requirements, they will receive representation and warranty enforcement relief for the accuracy of the income calculation on loans with income calculated by Income Calculator. 

    • All information submitted to Income Calculator must be accurate and complete.
    • A copy of the Findings Report must be kept in the loan file.
    • The amount of income used for qualifying cannot be more than the amount calculated by the tool.

    See, A2-2-04, Limited Waiver and Enforcement Relief of Representations and Warranties.

    Additional Requirements

    For loans that use the qualifying income amount calculated by Income Calculator, the lender must also comply with the requirements in the following table.

    Additional Lender Requirements
      Confirm that tax returns meet the allowable age of documents requirements in B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns.
      Ensure all information submitted to Income Calculator is accurate, complete, and reflects the information on the tax returns being used to document the qualifying income.
      Investigate and resolve any contradictory or conflicting information that may impact the accuracy of the income calculation.
      Comply with all other Selling Guide requirements, including DU messages, when applicable.
  • Q5.
    Where can I learn about the Fannie Mae 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.

Monthly Debt Obligations

  • Q1.
    For debts paid by others, if only a portion of the debt is paid by another party, can that portion be excluded in the DTI ratio?

    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.

  • Q2.
    For debts paid by others, what if the 12-month payment history shows more than one party has made the payments?

    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.

  • Q3.
    What documentation can be used to evidence a business debt was paid out of company funds?

    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.

  • Q4.
    When a debt is being paid by another party can payment histories be combined if there was an interruption in payments due to a refinance or trade-in?

    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.

Project Standards & Condo Project Manager (CPM)

  • Q1.
    Where can I find Condo Project Manager (CPM) FAQs?

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

  • Q2.
    Where can I find FAQs on Project Standards?

    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.

Student Loan Payments

  • Q1.
    Can a student loan be excluded from the DTI ratio if it was forgiven, canceled, or discharged?

    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.

  • Q2.
    If a borrower has multiple student loans in deferment or forbearance, should these payments be calculated separately or combined?

    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. 

  • Q3.
    If a student loan is in deferment or forbearance, can the payment amount be excluded for qualifying?

    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/.  

  • Q4.
    Is a credit supplement or other information required if a student loan tradeline has not been updated since prior to the end of the student loan payment pause?

    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.

  • Q5.
    What is the policy on income-driven repayment plans for student loans?

    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.

Our Selling and Servicing Guides and their updates, including Guide announcements and release notes, are the official statements of our policies and procedures and control in the event of discrepancies between the information provided here and the Guides.