FAQ: Top Trending Selling FAQs

Fixed payment streams do not have a minimum income history, while variable income must show at least 12 months of receipt.

Retirement, pension, and annuity income must be documented with acceptable evidence such as:

• a statement from the organization providing the income,
• a copy of retirement award letter or benefit statement,
• a copy of financial or bank account statement,
• a copy of signed federal income tax return,
• an IRS W-2 form, or
• an IRS 1099 form.

For pension and annuity income, if the borrower will begin receiving payments on or before the first mortgage payment date, the income must be documented with a benefit statement from the organization specifying the income type, amount and frequency of the payment, including the confirmation of the initial start date.

Retirement income must have proof of receipt prior to loan closing. 

Lenders must also verify that the income will continue for at least three years from the note date, which may involve reviewing written agreements, program rules, or retirement account balances that the borrower can access without restriction. Qualifying income is determined by using the documented monthly amount for fixed payments or a 12 month average for variable income.  

If the borrower is paid based on a fixed hourly rate and qualifies based on the minimum guaranteed number of hours that they are required to meet, and the income documentation supports at least this amount on a consistent basis, then the lender may consider this income as fixed.  However, if additional income is needed to qualify, the lender must follow the requirements for variable income.

If the gap occurred within the most recent 12 months, it is acceptable for the timeframe of the gap to exceed 30 days. However, the lender must carefully analyze the borrower’s current employment to ensure that it is likely to continue.

If the two-month gap can be documented as a non-recurring event outside the borrower’s control that temporarily prevented them from earning income, that period may be excluded from the income calculation.

A recent change in line of work may affect the borrower’s capacity to repay the loan. The lender must evaluate the  borrower’s work history to determine whether it reflects a reliable pattern of employment and a reliable flow of income.

The lender must confirm the borrower has at least a 12-month history of receiving variable base income, and then calculate the income using one of the allowable methods:

1. Average Income: Evaluate the income trend, using income from each job, and calculate qualifying income using an averaging approach. If the income trend is declining, the income may not be acceptable (see B3-3.3-01, Base Income).
2. Average Hours: Determine the average monthly hours based on at least the most recent 12 months, and multiply by the current fixed hourly rate.

When a borrower is working for more than one employer at the same time, the lender should confirm the borrower has a history of working more than one job at a time and that it is reasonable to believe the borrower will maintain the ability to earn from both employers for the foreseeable future. If the borrower does not have a history of working with these two employers for at least two years, the lender may consider the income from these two employers if the borrower has a history of at least 12 months simultaneously at these two jobs. If less than a two-year history is documented, the lender must confirm there are positive factors to reasonably offset the shorter income history and there is no employment gap greater than one month with either employer (unless the employment is considered seasonal).

When an income type requires a historical trending analysis as part of the income calculation, the trending analysis must be performed separately for each job, as applicable.

Future increases in pay from the borrower’s current employer may be included as qualifying income when the following requirements are met:

• The income is fixed base only.
• The transaction is a purchase money or limited cash-out refinance transaction.
• The increase must take effect no later than 60 days after the note date.
• The increase is fully verified with the employer using Form 1005, Request for Verification of Employment or other documentation directly from the employer that provides the terms of the future pay increase.
• Borrower must not be employed by a family member or interested party.

The lender must obtain and review documentation to support that the current income level has stabilized after the decline. If the lender cannot confirm stabilization, the income is not eligible for qualifying.

Examples of documentation that may support stabilization include:

• recent consecutive paystubs and year-to-date earnings reflecting a consistent level of income after the decline,
• employer-provided verification or written documentation supporting stability of the current pay structure and/or explaining the reason for the decline; or
• documentation supporting a non-recurring event outside the borrower’s control that temporarily prevented earnings.

Business assets may be an acceptable source of funds for the down payment, closing costs, and financial reserves. The borrower must be listed as an owner of the account and the account must be verified in accordance with B3-4.2-01, Verification of Deposits and Assets.  If the borrower is also using self-employment income from this business to qualify, see Use of Business Assets below for additional information on the analysis of a self-employed borrower.

Use of Business Assets

When a borrower is using self-employment income to qualify for the loan and also intends to use assets from their business as funds for the down payment, closing costs, and/or financial reserves, the lender must perform a business cash flow analysis to confirm that the withdrawal of funds for this transaction will not have a negative impact on the business. To assess the impact, the lender may require a level of documentation greater than what is required to evaluate the borrower’s business income (for example, several months of recent business asset statements in order to see cash flow needs and trends over time, or a current balance sheet). This may be due to the amount of time that has elapsed since the most recent tax return filing, or the lender’s need for information to perform its analysis. 

A gift can be provided by:

• a relative, defined as the borrower’s spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship; or
• a non-relative that shares a familial relationship with the borrower defined as a domestic partner (or relative of the domestic partner), individual engaged to marry the borrower, former relative, or an individual with a long-standing familial-like or mentorship relationship with the borrower.

The donor may not be, or have any affiliation with, the builder, the developer, the real estate agent, or any other interested party to the transaction.

See B3-4.3-06, Grants and Lender Contributions, for information about donations from entities (grants).

If funds from a large deposit are needed to complete the purchase transaction (that is, are used for the down payment, closing costs, or financial reserves), the lender must document that those funds are from an acceptable source.

Occasionally, a borrower may not have all of the documentation required to confirm the source of a deposit. In those instances, the lender must use reasonable judgment based on the available documentation as well as the borrower’s debt-to-income ratio and overall income and credit profile. Examples of acceptable documentation include the borrower’s written explanation, proof of ownership of an asset that was sold, or a copy of a wedding invitation to support receipt of gift funds. The lender must place in the loan file written documentation of the rationale for using the funds.

Verified funds must be reduced by the amount (or portion) of the undocumented large deposit (defined as a single deposit that exceeds 50% of the total monthly qualifying income for the loan), and the lender must confirm that the remaining funds are sufficient for the down payment, closing costs, and financial reserves. When the lender uses a reduced asset amount, net of the unsourced amount of a large deposit, that reduced amount must be used for underwriting purposes (whether the loan is underwritten manually or through DU).

Liquid financial reserves are those liquid or near liquid assets that are available to a borrower after the mortgage closes. Liquid financial reserves include cash and other assets that are easily converted to cash by the borrower by

• drafting or withdrawing funds from an account,
• selling an asset,
• redeeming vested funds, or
• obtaining a loan secured by assets from a fund administrator or an insurance company.

Reserves are measured by the number of months of the qualifying payment amount for the subject mortgage (based on PITIA) that a borrower could pay using their financial assets. For monthly housing expense and qualifying payment requirements, see B3-6-03, Monthly Housing Expense for the Subject Property and B3-6-04, Qualifying Payment Requirements. The definition of reserves applies to both manually underwritten mortgage loans and loan casefiles underwritten through DU. Funds to close are subtracted from available assets when considering sufficient assets for reserves.

Acceptable Sources of Reserves

Examples of liquid financial assets that can be used for reserves include readily available funds in

• checking or savings accounts;
• investments in stocks, bonds, mutual funds, certificates of deposit, money market funds, and trust accounts;
• the amount vested in a retirement savings account; and
• the cash value of a vested life insurance policy

Unacceptable Sources of Reserves

The following cannot be counted as part of the borrower’s reserves:

• funds that have not been vested;
• funds that cannot be withdrawn under circumstances other than the account owner’s retirement, employment termination, or death;
• stock held in an unlisted corporation;
• non-vested stock options and non-vested restricted stock;
• personal unsecured loans;
• rent-back credit;
• interested party contributions (IPCs) (see B3-4.1-02, Interested Party Contributions (IPCs)) ;
• any amount of a lender contribution (see B3-4.3-06, Grants and Lender Contributions); and
• cash proceeds from a cash-out refinance transaction on the subject property.

For information on using virtual currency as a source of reserves, see B3-4.1-04, Virtual Currency.

Funds disbursed from a borrower’s trust account are an acceptable source for the down payment, closing costs, and reserves provided the borrower has immediate access to the funds.

To document trust account funds, the lender must:

• obtain written documentation of the value of the trust account from either the trust manager or the trustee, and
• document the conditions under which the borrower has access to the funds and the effect, if any, that the withdrawal of funds will have on trust income used in qualifying the borrower for the mortgage.

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.

When a self-employed borrower claims that a monthly obligation that appears on their personal credit report (such as a Small Business Administration loan) is being paid by the borrower’s business, the lender must confirm that it verified that the obligation was actually paid out of company funds and that this was considered in its cash flow analysis of the borrower’s business.

The account payment does not need to be considered as part of the borrower’s DTI ratio if:

• the account in question does not have a history of delinquency,
• the business provides acceptable evidence that the obligation was paid out of company funds (such as 12 months of canceled company checks), and
• the lender’s cash flow analysis of the business took payment of the obligation into consideration.

The account payment must be considered as part of the borrower’s DTI ratio in any of the following situations:

• If the business does not provide sufficient evidence that the obligation was paid out of company funds.
• If the business provides acceptable evidence of its payment of the obligation, but the lender’s cash flow analysis of the business does not reflect any business expense related to the obligation (such as an interest expense—and taxes and insurance, if applicable—equal to or greater than the amount of interest that one would reasonably expect to see given the amount of financing shown on the credit report and the age of the loan). It is reasonable to assume that the obligation has not been accounted for in the cash flow analysis.
• If the account in question has a history of delinquency. To ensure that the obligation is counted only once, the lender should adjust the net income of the business by the amount of interest, taxes, or insurance expense, if any, that relates to the account in question. 

When a borrower has entered into or applied for an installment agreement with the IRS to repay delinquent federal income taxes, and there is no indication that a Notice of Federal Tax Lien has been filed against the borrower in the county in which the subject property is located, the lender must obtain the following documentation: 

• For installment agreements approved by the IRS:
  • a copy of the approved IRS installment agreement with the terms of repayment, including the monthly payment amount and total amount due; and
  • evidence the borrower is current on the payments associated with the tax installment plan. Acceptable evidence includes the most recent payment reminder from the IRS, reflecting the last payment amount and date and the next payment amount owed and due date.  
• For installment agreements pending approval by the IRS
  • a copy of the application for the installment agreement with the terms of repayment, including the monthly payment amount and total amount due. 

In both cases, if the borrower is not paying off the amount owed in full, the lender must include the monthly payment amount as part of the borrower’s monthly debt obligations. If any of the above conditions are not met, the borrower must pay off the outstanding balance due under the installment agreement with the IRS in accordance with B3-6-07, Debts Paid Off At or Prior to Closing. 

The payments on a federal income tax installment agreement approved by the IRS can be excluded from the borrower’s DTI ratio if the agreement meets the terms in Debts Paid by Others or Installment Debt described in B3-6-05, Monthly Debt Obligations.  

As a reminder, the lender remains responsible under the life-of-loan representations and warranties for clear title and first-lien enforceability in accordance with A2-2-07, Life-of-Loan Representations and Warranties. 

Authorized user (AU) tradelines are not automatically included in the borrower's DTI ratio. DTI treatment depends on whether the borrower is obligated on the account. The lender is required to include the debts for which the borrower is financially obligated in the DTI ratio calculation, unless the exclusions described in Debts Paid by Others of B3-6-05, Monthly Debt Obligations apply.

For manual underwriting consideration of authorized users of credit, see B3-5.3-06, Authorized Users of Credit.

The lender must review the borrower’s credit history to determine previous mortgage delinquency, severity (e.g., 30, 60, or 90 days), and recency of the delinquency. Loans with excessive prior mortgage delinquencies are not eligible for delivery to Fannie Mae. Excessive prior mortgage delinquency is defined as any mortgage tradeline that has one or more 60-, 90-, 120-, or 150-day delinquency reported within the 12 months prior to the credit report date. See B3-5.3-02, Payment History, and B3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-establishing Credit for additional information.

Note: For purposes of complying with the guidelines in B3-5.3-03, Previous Mortgage Payment History, timeshare accounts identified as mortgage tradelines are not required to meet the requirements described above, and are considered to be installment accounts.

Manually Underwritten Loans

Non-medical collection accounts and charge-offs on non-mortgage accounts do not have to be paid off at or prior to closing if the balance of an individual account is less than $250 or the total balance of all accounts is $1,000 or less. Non-medical collection accounts and charge-offs on non-mortgage accounts that exceed these limits must be paid off at or prior to closing.

For additional information, see B3-6-07, Debts Paid Off At or Prior to Closing.

DU Underwritten Loans

Medical collection accounts are excluded from the limits below and are not required to be paid in full at or prior to closing.

• For one-unit, principal residence properties, borrowers are not required to pay off outstanding collections or non-mortgage charge-offs—regardless of the amount.

  Note: If the lender marks the collection account Paid By Close in the online loan application, DU will issue a message in the DU Underwriting Findings report stating that the collection must be paid.

• For two- to four-unit owner-occupied and second home properties, collections and non-mortgage charge-offs totaling more than $5,000 must be paid in full prior to or at closing.
• For investment properties, individual collection and non-mortgage charge-off accounts equal to or greater than $250 and accounts that total more than $1,000 must be paid in full prior to or at closing.

When at least one borrower has a minimum of one credit account or installment account reported on their credit report, DU will assess the risk using the borrower’s reported credit and the loan will be subject to standard eligibility guidelines.

When no borrower has at least one credit account or installment account reported on their credit report, DU will apply the following requirements:

• The property must be a one- to four-unit, principal residence, and all borrowers must occupy the property.
• The transaction must be a purchase or limited cash-out refinance.
• Reserves may be required as determined by DU.

In both cases, no verification of nontraditional credit references is required for any borrower when DU conducts a cash flow assessment and issues a message that the third-party asset verification report may be used to satisfy the requirements. Otherwise, a nontraditional credit history must be documented for each borrower as instructed by DU. See B3-5.4-03, Documentation and Assessment of a Nontraditional Credit History, for additional information.

If a loan casefile does not receive an Approve/Eligible recommendation, it may receive a more favorable recommendation if a 12-month asset verification report is obtained (see B3-2-03, Risk Factors Evaluated by DU). In some cases the loan may still be eligible for manual underwriting. The lender must determine whether the loan meets the requirements for a manually underwritten loan that includes a borrower without a credit score.

The number of nontraditional credit references that must be documented for a borrower without a credit score differs depending on the underwriting method and loan product, as described in the table below.

If an existing first mortgage is being paid off through the transaction, it must be at least 12 months old at the time of refinance, as measured by the note date of the existing loan to the note date of the new loan. This requirement does not apply

• to any existing subordinate liens being paid off through the transaction, or
• when buying out a co-owner pursuant to a legal agreement.

At least one borrower must have been on title for at least for six months prior to the disbursement date of the new loan. See Ownership of the Property below for exceptions.

Ownership of the Property

At least one borrower must have been on title to the subject property for at least six months prior to the disbursement date of the new loan, unless one of the following exceptions apply:

• There is no waiting period if the lender documents that the borrower acquired the property through an inheritance or was legally awarded the property (divorce, separation, or dissolution of a domestic partnership).
• The delayed financing requirements are met. See Delayed Financing Exception in B2-1.3-03, Cash-Out Refinance Transactions.
• If the property was owned prior to closing by a limited liability corporation (LLC) that is majority-owned or controlled by the borrower(s), the time it was held by the LLC may be counted towards meeting the borrower’s six-month ownership requirement. (In order to close the refinance transaction, ownership must be transferred out of the LLC and into the name of the individual borrower(s). See B2-2-01, General Borrower Eligibility Requirements for additional details.)
• If the property was owned prior to closing by an inter vivos revocable trust, the time held by the trust may be counted towards meeting the borrower’s six-month ownership requirement if the borrower is the primary beneficiary of the trust.

The above ownership policy applies in addition to the requirement that an existing first mortgage being paid off through the refinance is at least 12 months old.

A borrower must establish ownership interest in the security property and become liable for the note (whether individually or jointly) by:

• signing the security instrument,
• signing the mortgage or deed of trust note, and
• taking title to the property in the name of the individual borrower(s).

If the security property is held in a life estate established under state property law, the following provisions apply: 

• The life tenant (the individual who has the right to possess and use the subject property during their lifetime) must be a borrower.
• One (or more) remaindermen (individuals who have an irrevocable, vested and alienable interest in the subject property and who will receive full ownership of the subject property upon the death of the life tenant) may also be co-borrowers.  
• Both the life tenant and all remaindermen must sign the security instrument to convey their respective interests in the property. 

This Selling Guide UAD 3.6 Policy Supplement provides the updated policy specifically for lenders using the Uniform Appraisal Dataset (UAD) 3.6.

All lenders are required to use UAD 3.6 for all new appraisal reports submitted to the Uniform Collateral Data Portal (UCDP) on or after Nov. 2, 2026.

View the UAD 3.6 Policy Supplement

Overview

HomeStyle Refresh provides borrowers with a financing option for smaller-scale home improvements.

A lender does not need special approval to deliver HomeStyle Refresh loans to Fannie Mae. These loans are delivered with recourse, which may be removed once the lender provides proof of completion and the loan remains current.

A lender may deliver a HomeStyle Refresh loan with eligible improvements as soon as the loan is closed. The eligible improvements do not have to be completed when the mortgage is delivered to Fannie Mae. 

Maximum Amount to Finance Improvements

For the renovation of an existing property, finance improvements up to 15% of the "as completed" appraised value of the property.

Eligible Improvements

The HomeStyle Refresh program may be used to make small-scale improvements and renovations to an existing property, such as:  

• kitchen or bathroom updates;
• construction of outdoor buildings and structures when allowed by local zoning regulations, for example swimming pools, decking, screening and porch, and patio additions;
• adding or renovating an accessory dwelling unit;
• improvements or repairs related to disaster damage or improvements to protect the property from future disaster, such as
  • storm- surge barriers,
  • foundation retrofitting for earthquakes,
  • hazardous brush and tree removal in fire zones, or
  • retaining walls to address mud or water flows.
• environmental hazard damage repairs or resiliency improvements, including asbestos, lead, mold, and radon; or
• energy- or water-efficiency improvements. 

For more information, see Section B5-3.3, HomeStyle Refresh of the Selling Guide.

Overview

The HomeStyle Renovation mortgage enables a borrower to purchase a property or refinance an existing loan and include funds in the loan amount to cover the costs of repairs, remodeling, renovations, or energy improvements to the property. The loan may be delivered to Fannie Mae prior to completion of the renovation, subject to limited recourse as described in B5-3.2-01, HomeStyle Renovation Mortgages.

Lender Eligibility

HomeStyle Renovation mortgage loans have specific product requirements and guidelines for which lenders must ensure detailed compliance. Lenders must obtain special approval to deliver these types of loans to Fannie ae prior to completion of the renovation work. See A2-1-01, Contractual Obligations for Sellers/Servicers for additional information. If a lender delivers HomeStyle Renovation loans to Fannie Mae after all renovation work is complete, no special approval is required.

Maximum Cost for Renovations

Allowable Improvements

There are no required improvements or restrictions on the types of renovations allowed, nor is there a minimum dollar amount for renovations.

Generally, improvements should be permanently affixed to the real property (either dwelling or land), with the exception of certain appliances installed with kitchen and utility room remodels. The borrower may use HomeStyle Renovation to purchase appliances as part of an overall remodeling project that includes substantial changes or upgrades to the rooms in which the appliances are placed.

HomeStyle Renovation may be used to complete the final work on a newly built home when the home is at least 90% complete. The remaining improvements must be related to completing non-structural items the original builder was unable to finish. Such work may include installation of buyer-selected items such as flooring, cabinets, kitchen appliances, fixtures, and trim.

HomeStyle Renovation may be used to construct various outdoor buildings and structures when allowed by local zoning regulations. These buildings or structures must be in compliance with any applicable building codes for the local area. Examples of acceptable structures include, but are not limited to, accessory units, garages, recreation rooms, and swimming pools. See Accessory Dwelling Units in B2-3-04, Special Property Eligibility Considerations for additional information about eligible ADUs.

HomeStyle Renovation may not be used for complete tear-down and reconstruction of the dwelling.

For more information, see Section B5-3.2, HomeStyle Renovation of the Selling Guide.