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What Is Fannie Mae And How Do FNMA Loans Work?

Kevin Graham5-minute read

July 24, 2023


Whether you’re in the market to buy a home, refinance a house or just follow the news, you’ve probably heard of Fannie Mae, otherwise known as the Federal National Mortgage Association (FNMA). You may even be aware that Fannie Mae plays a significant role in the housing market, even if you’re not fully familiar with how it works.

When choosing a mortgage, Fannie Mae is just one provider that may be available to you. Still, understanding how investors like Fannie Mae work will give you a better understanding of the housing market and the overall process associated with getting a mortgage.

What Is Fannie Mae?

Fannie Mae is a government-sponsored enterprise (GSE) that purchases mortgage loans from smaller banks or credit unions and guarantees, or backs, these loans on the mortgage market for low-to-median income borrowers. The mortgages are sold as mortgage-backed securities to investors, providing the necessary liquidity in the mortgage markets to make more loans and keep housing affordable.

History Of Fannie Mae

Fannie Mae was founded in 1938 by Congress as a GSE in order to provide affordable housing. Prior to that, getting a mortgage required a down payment that could be 50% or more. There were also very strict terms which often enabled the lender to take your home back if you had even one missed payment.

Since its founding, Fannie Mae has seen growth as well as its fair share of bumps. In 1968, Fannie Mae went private after a round of investment by shareholders that was chartered by Congress. Its funding came completely from the stock and bond markets. However, in the late 2000s, Fannie Mae was hit hard by the economic downturn and subsequent troubles in the real estate market.

Fannie Mae has been under the government conservatorship of the Federal Housing Finance Agency (FHFA) since late 2008. It was delisted from the New York and Chicago stock exchanges in mid-2010. Under the agreement, the FHFA financially supports Fannie Mae in certain circumstances in exchange for preferred stock.

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How Do Fannie Mae (FNMA) Loans Work?

Because Fannie Mae doesn’t originate loans, you can’t get your mortgage directly from Fannie. Banks and non-bank lenders like Rocket Mortgage® are responsible for collecting a client’s application, underwriting the loan – by verifying income, assets and property value – and getting them to the closing table. Once the loan closes, Fannie Mae buys loans that meet its requirements from lenders.

Fannie Mae Conforming Loan Limits

The FHFA sets requirements for Fannie Mae called conforming loan limits. These mortgage loans, known as conforming mortgages, are guaranteed by Fannie Mae. This means they’ll make investors whole if the borrower goes into default. Fannie Mae packages these loans into mortgage-backed securities (MBS) before selling them on the open bond market to investors.

An MBS might consist of 1,000 loans or more that have similar characteristics. Fannie Mae has certain rules, among them that they won’t buy non-conforming loans. Many components can make a loan nonconforming, but one of the most common characteristics is jumbo loan status, which for 2022 is any loan above $726,200 for 1-unit properties in non-high-cost areas.

Fannie Mae Loan Requirements

You should always feel free to speak with a Home Loan Expert about your situation, but the following is a short list of general guidelines for Fannie Mae loan approval:

  • Credit score: Your credit score plays a role in the loan approval process. With loans from either Fannie Mae or its competitor Freddie Mac, you’ll need a qualifying FICO® Score of at least 620. If you're an individual borrower, your qualifying score is the median between the three major credit bureaus – Experian™, Equifax® and TransUnion®. Something that's unique to Fannie Mae loans is that if there are two or more borrowers on the loan, the average of the median credit scores becomes your qualifying credit score for the purposes of getting a mortgage.
  • Debt-to-income ratio (DTI): DTI, which compares your monthly debt payments to your before-tax monthly income, should be no higher than 50% in most cases to qualify for a Fannie Mae loan. This may need to be lower depending on your situation.
  • Down payment: For second homes and investment properties, the down payment requirements are higher, but for a 1-unit primary residence, the down payment needed could be anywhere from 3% – 5%.
  • Reserves: Reserves represent the number of mortgage payments lenders want to see in your account in case you experience a loss of income or other financial hardship. Your reserves could be up to 6 months with a Fannie Mae loan, although 2 months is generally a good starting point.

Fannie Mae Mortgage Programs

Fannie Mae is a mortgage investor, but they have programs that are intended to help everyone from home buyers to current homeowners and even renters.


Available for both first-time and repeat home buyers, the HomeReady® program allows you to buy a home, refinance to lower your rate and/or change your loan term with as little as 3% down or in existing equity.

Because it’s intended to help clients with low-to-moderate incomes, those on the loan can’t make more than 80% of the area median income between them. Fannie Mae does have an option to have 3% down without income limits, but at least one client must be a first-time home buyer.


HomePath® is the site where Fannie Mae features foreclosures that it’s taken possession of to resell, also known as real estate owned (or REO) properties. You have to know what you’re getting into when buying a foreclosed property because they’re typically sold as-is and they often require some work. However, you may be able to get a good deal.

Additionally, first-time home buyers who choose a Fannie Mae-owned property can spend as little as 3% down and get up to 3% back in closing-cost assistance in the form of seller concessions from Fannie Mae through the company’s HomePath Ready Buyer™ program. You’ll also have to take a homeownership education course that costs $75. This cost can be reimbursed as part of your closing assistance.


The RefiNow™ program offers options for homeowners who have experienced difficulty qualifying for a refinance to lower their mortgage payments in the past.1 RefiNow™ has looser requirements around DTI and home equity, which serves homeowners who meet certain low-income thresholds.

Eligible homeowners for the RefiNow™ program need to see at least a 0.5% reduction in their interest rate and their overall mortgage payment has to decrease. There are other benefits of the RefiNow™ program, including that those who qualify will receive a $500 credit toward a home appraisal, if the appraisal is mandatory.

It's important to note that when qualifying for RefiNow™, the lowest median credit score is used for qualifying even when there are multiple clients on the loan. The lowest median FICO® Score among all borrowers on the loan can't be lower than 580.

Mortgage Help Network

If for any reason you’re struggling with your monthly mortgage payment, homeowners with Fannie Mae-owned loans can utilize the Mortgage Help Network. This program allows homeowners to work with a Department of Housing and Urban Development housing counselor in order to go over the situation, look at options and serve as a liaison between homeowners and a mortgage servicer. If you’re a Rocket Mortgage client who’s having or may soon be having payment trouble, please feel free to reach out to us by filling out our Application for Success. We’re here to help!

Tenant-In-Place Rental Program

If you’re a tenant in a Fannie Mae-owned property that’s currently being foreclosed upon, you may be able to continue renting at current market rates with the Tenant-In-Place program. In certain cases, you may be able to keep your current lease. In others, you may be given the option to sign a new lease agreement. Fannie Mae offers include month-to-month leases as well as those that are good for a specific term.

The Bottom Line: There Are Many Fannie Mae Loan Options Available

Fannie Mae offers mortgage options that not only support the real estate market, but also current home buyers and homeowners looking to refinance. Ready to find the right loan for you? Get started on the mortgage process today You can also give one of our Home Loan Experts a call at (833) 326-6018.

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Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage, he freelanced for various newspapers in the Metro Detroit area.