Fannie Mae Underwriting: Credit, DTI, Down Payment, Reserves

Fannie Mae’s underwriting guidelines are the rules lenders follow to decide whether a conventional mortgage can be sold on the secondary market, and a loan that misses those rules usually won’t get made in the first place. For 2026, the baseline conforming loan limit on a one-unit property is $832,750, and the core borrower requirements are a credit score of at least 620, a debt-to-income ratio no higher than 50% through automated underwriting, and a down payment as low as 3% on a one-unit primary residence. Everything else — reserves, waiting periods after credit events, mortgage insurance, property type rules — layers on top of those basics.

2026 Conforming Loan Limits

The Federal Housing Finance Agency resets the maximum loan amount Fannie Mae will buy each year based on national home price changes. For 2026, the baseline limit for a one-unit property in most of the country is $832,750. In designated high-cost areas the ceiling rises to $1,249,125 for a one-unit property, which is 150% of the baseline.1Federal Housing Finance Agency. FHFA Announces Conforming Loan Limit Values for 2026

Multi-unit properties get higher baseline limits in 2026:

Any mortgage above the applicable county limit is a jumbo loan and falls outside conforming guidelines entirely.

Minimum Credit Score

Fannie Mae currently uses Classic FICO scores, pulling from all three major bureaus and using the middle score for each borrower. The representative minimum is 620 for a fixed-rate mortgage and 640 for an adjustable-rate mortgage.3Fannie Mae. General Requirements for Credit Scores When more than one borrower is on the loan, the lender qualifies off the lower representative score.

Borrowers with no traditional FICO score can still qualify. A nontraditional credit profile can be built from at least 12 months of payment history on recurring obligations such as rent, utilities, and insurance premiums.4Fannie Mae. Fannie Mae Selling Guide – B3-5.4-01, Nontraditional Mortgage Credit Reports That path is meant for borrowers who never opened credit accounts, not for borrowers whose scores fell below 620.

Debt-to-Income Ratio

DTI compares total monthly debt payments against gross monthly income before taxes. For loans run through Desktop Underwriter, the maximum ratio is 50%. Manually underwritten loans cap at 36% baseline, stretching to 45% only when the borrower meets extra credit score and reserve requirements.5Fannie Mae. Debt-to-Income Ratios

The debt side includes the proposed housing payment (principal, interest, taxes, insurance, and any HOA dues), plus car loans, credit card minimums, personal loans, alimony, and child support. Student loans get their own treatment. For deferred loans or those in forbearance, the lender may use either the fully amortizing payment based on the loan terms or 1% of the outstanding balance. If the credit report shows an active repayment amount, that figure is used.6Fannie Mae. Monthly Debt Obligations

On the income side, underwriters use gross earnings averaged over a stable period. Commissions and bonuses are typically averaged across 24 months. Declining variable income is a red flag, and the underwriter may use the lower recent figure instead of the average.

Down Payment by Occupancy Type

Fannie Mae states minimums as maximum loan-to-value ratios. A 97% LTV means 3% down; a 90% LTV means 10% down.

Primary Residence

A one-unit primary residence with a fixed-rate mortgage can go up to 97% LTV, meaning 3% down.7Fannie Mae. Eligibility Matrix Adjustable-rate mortgages on the same property cap at 95% LTV. Two- to four-unit primary residences (borrower lives in one unit) allow up to 95% LTV through Desktop Underwriter.

HomeReady, Fannie Mae’s program for lower-income borrowers, also allows 3% down on a one-unit home. Income generally cannot exceed 100% of the area median income for the property’s location, though properties in low-income census tracts have no income cap.8Federal Deposit Insurance Corporation. HomeReady Mortgage HomeReady requires no minimum contribution from the borrower’s own funds on a one-unit home, so the entire down payment can come from gift funds or grants.

Second Home

Second homes require at least 10% down (90% maximum LTV) for purchase transactions.

Investment Property

Single-unit investment properties need at least 15% down. Two- to four-unit investment properties need at least 25% down.7Fannie Mae. Eligibility Matrix

Gift Funds

Gift funds are allowed on primary residences and second homes but not on investment properties.9Fannie Mae. Personal Gifts Acceptable donors include relatives by blood, marriage, or adoption, domestic partners, and individuals with a long-standing familial-type relationship with the borrower. The donor cannot be the builder, real estate agent, or anyone with a financial interest in the transaction.

When LTV exceeds 80% on a two- to four-unit primary residence or a second home, the borrower must contribute at least 5% from their own funds before gift money can cover the rest. On a one-unit primary residence, no minimum borrower contribution is required regardless of LTV. Lenders need a signed gift letter and documentation of the fund transfer.

Waiting Periods After Bankruptcy or Foreclosure

Major credit events don’t permanently disqualify a borrower, but each carries a mandatory waiting period, and the clock starts from different dates depending on the event. Getting the start date wrong is a common reason applications stall.

  • Chapter 7 or Chapter 11 bankruptcy: four years from the discharge or dismissal date, or two years with documented extenuating circumstances.10Fannie Mae. Significant Derogatory Credit Events – Waiting Periods and Re-Establishing Credit
  • Chapter 13 bankruptcy, discharged: two years from the discharge date.
  • Chapter 13 bankruptcy, dismissed: four years from the dismissal date, or two years with extenuating circumstances.
  • Foreclosure: seven years from completion, or three years with extenuating circumstances.
  • Deed-in-lieu of foreclosure or short sale: four years, or two years with extenuating circumstances.

Extenuating circumstances has a specific meaning: a one-time event beyond the borrower’s control that caused a sudden, significant drop in income or increase in obligations. The death of a primary wage earner or a serious medical emergency qualifies. A general business downturn or voluntary job change does not. Borrowers claiming the shorter period need documentation of both the event and its financial impact.

Reserve Requirements

Reserves are liquid assets left over after closing, counted in months of housing payments. They prove the borrower can absorb a temporary income disruption. The minimums scale with property type:

  • One-unit principal residence: none required.11Fannie Mae. Minimum Reserve Requirements
  • Second home: two months.
  • Two- to four-unit principal residence: six months.
  • Investment property: six months.

Desktop Underwriter may add reserves based on overall risk, such as when a borrower already owns multiple financed properties and the new loan is for a second home or investment property. Cash-out refinances with a DTI above 45% trigger six months of reserves regardless of property type. Reserve funds must be verified with two months of bank statements or equivalent documentation showing the money is liquid and accessible.12Fannie Mae. Verification of Deposits and Assets

Income Documentation

Fannie Mae looks for income that is stable, predictable, and likely to continue. The paperwork gets heavier as the income gets more complex.

Salaried and Hourly Workers

The standard package is W-2s from the most recent two years and pay stubs covering the last 30 days. Underwriters want a consistent two-year history in the same line of work, though staying at the same employer isn’t required.13Fannie Mae. Standards for Employment and Income Documentation Overtime, commissions, and bonuses are averaged over 24 months, with declining trends pulling the qualifying figure down.

Self-Employed Borrowers

Self-employed borrowers generally provide signed personal and business federal tax returns for the most recent two years plus a cash flow analysis. When the borrower has owned at least 25% of the business for five or more consecutive years, the lender may accept just one year of returns.14Fannie Mae. Underwriting Factors and Documentation for a Self-Employed Borrower Business returns can also be waived when the borrower meets that five-year threshold, uses personal funds for the down payment and reserves, and shows increasing self-employment income across the past two years.

Non-employment income (Social Security, disability, pensions) needs an award letter or recent proof of receipt. Documents must be complete and unredacted; a bank statement with blacked-out transactions or a tax return missing schedules will come back.

Private Mortgage Insurance and When It Ends

Any conventional loan closed with less than 20% down carries private mortgage insurance, which protects the lender if the borrower defaults. PMI adds a meaningful amount to the monthly payment, and federal law sets clear exit points.

Under the Homeowners Protection Act, a borrower can request PMI cancellation in writing once the principal balance is scheduled to reach 80% of the home’s original value. The borrower must be current, have a good payment history, certify there are no junior liens, and show that the property’s value hasn’t declined.15Consumer Financial Protection Bureau. When Can I Remove Private Mortgage Insurance (PMI) From My Loan? Original value usually means the lower of the purchase price or the appraised value at closing.

If the borrower never requests cancellation, the servicer must automatically terminate PMI once the principal balance is scheduled to reach 78% of original value, as long as the borrower is current. PMI must also end at the midpoint of the amortization schedule regardless of balance, which is year 15 on a 30-year loan.16Consumer Financial Protection Bureau. Homeowners Protection Act (HPA) PMI Cancellation Act Procedures Borrowers who prepay principal should track their LTV and submit the written request at 80% rather than waiting for the 78% automatic cutoff.

Property Eligibility and Appraisal

The property has to meet Fannie Mae’s standards on its own, separate from the borrower’s file. Eligible types include single-family homes, planned unit developments, and condos or co-ops that clear project-level review.

Condominium Projects

Condos are reviewed at the project level as well as the unit level. Under a full review, no more than 15% of units can be 60 or more days delinquent on HOA assessments, and the HOA budget must allocate at least 10% of annual income to replacement reserves. For investment property purchases in established projects, at least 50% of units must be owner-occupied as a primary residence or second home.17Fannie Mae. Full Review Process Projects with serious deferred maintenance, active litigation against the developer, or inadequate insurance are generally ineligible.

Manufactured Homes

Manufactured housing is eligible under specific conditions. Single-wide homes do not qualify for MH Advantage, the program that offers more favorable terms. MH Advantage requires a multi-section home on a permanent foundation with a masonry perimeter wall meeting HUD standards, certified by a licensed engineer or architect.18National Institute of Building Sciences. Manufactured Housing Construction Guide Standard manufactured home loans also require a permanent foundation and cap at 97% LTV for a one-unit primary residence purchase with a fixed-rate mortgage.

Appraisal or Value Acceptance

When a full appraisal is required, the appraiser evaluates the property’s condition and market value using comparable recent sales. Safety issues like peeling lead-based paint or exposed wiring must be repaired before closing. Homes with severe structural damage or commercial-grade components are ineligible.

Not every loan needs a full appraisal. Desktop Underwriter may return a value acceptance offer, which waives the appraisal for qualifying transactions. Value acceptance is available for one-unit properties, including condos, on principal residence and second home purchases and refinances, and on certain investment property refinances, when DU returns an Approve/Eligible recommendation. The offer must be exercised within four months of the note date, and the lender cannot obtain an appraisal for the transaction after choosing value acceptance.19Fannie Mae. Value Acceptance Using it can save the borrower several hundred dollars in appraisal fees and cut days off the closing timeline.