How to Apply For a Fannie Mae Loan

Two Parts:Gathering InformationQualifying for the Loan

Fannie Mae is a privately held company created after the great depression to bolster lending to prospective homeowners. Fannie Mae does not lend money to consumers, but rather buys qualifying mortgages from lenders in what is called the secondary market. You cannot apply directly for a Fannie Mae Loan. But to receive a good loan, you will often need to prove to your lenders that their investment will be backed by Fannie Mae.[1]

Part 1
Gathering Information

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    Check your credit score. Typically Fannie Mae will only qualify loans to borrowers with a credit score of at least 620 according to all three major credit bureaus. If you find that your credit score is lower than this threshold, work on paying down your debt and making on-time payments to improve your credit score.[2]
    • You cannot get your credit score from your credit report. However, it's important to routinely review your credit report, and check to see what events have negatively impacted your credit. If you believe any of these reports are in error, gather all of the relative documents and write a letter disputing the charge to both the credit bureaus and the party that implicated you in the event (such as a lender or credit card issuer).[3]
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    Verify income and employment history. Income is defined as taxable earnings. To verify income you will need to collect IRS W-2 forms for the past two years. Fannie Mae typically requires proof of at least two years of consistent employment, though not necessarily with the same employer.[4]
    • Income is defined as taxable income minus deductions. This can be an obstacle for self-employed individuals or employees who are able to claim business-related deductions. Profits that are deducted will not count toward your income.[5]
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    Calculate your obligations. When you apply you will need to reveal all of your credit obligations. These include mortgages, credit card accounts, co-signed loans, and child support. Fannie Mae does not pay attention to utility obligations, auto insurance, or childcare.[6]

Part 2
Qualifying for the Loan

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    Calculate your debt-to-income (DTI) ratio. To qualify for a mortgage loan, you must be able to prove that your income covers all of your monthly debt payments, including the proposed new mortgage payment, within DTI guidelines as set forth by Fannie Mae.
    • Fannie Mae uses two metrics to calculate debt-to-income ratio. The first is the ratio of income to the monthly housing costs, inclusive of principal, interest, taxes and homeowners insurance, which should be around 28% or less. The second is the ratio of income to these same housing expenses plus other obligations (credit cards, co-signed loans, and child support), which should be around 45% or less. Acceptable ratios do change over time.[7]
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    Improve debt-to-income ratio. If you find that you do not meet the debt-to-income ratio there are a few things you can do to fix the situation. Essentially, you can either reduce your debt obligations or increase your income.
    • If you make a larger down payment on the house, you can decrease your debt, allowing you to meet the qualifying ratio.
    • While it is hard to instantly increase your income, it might not be so hard to make your income look larger. If you find a co-signer for the loan, her income will be factored into the ratio as well.
    • If you find that you still cannot meet the debt-to-income ratio, you can renegotiate with the seller for a lower price. This might be difficult, but if the homeowner has struggled to sell the house, they might agree to a lower price.[8]
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    Meet homeowner obligations. Fannie Mae are designed for homeowners. You cannot apply as a corporation. The property must be a single family home, not a business property. The home also cannot cost more than $417,000.
    • There are approximately 100 counties where, because of high housing expenses, the limit for a qualifying loan has been increased. In such cases the limit will still be no more than $625,500.
    • A loan for a home that is more $417,000 (or $625,500 in select counties) is known as a jumbo loan. Because they do not qualify for the backing of Fannie Mae, these loans are riskier for your lender, who will typically enforce more stringent requirements. Buyers must have a maximum debt-to-income ratio of 45% and might be required to have as much as 20% of the value of the loan in reserve.[9]
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    Find a lender. When you feel reasonably certain that you qualify, find a lender. You should shop around all of the local institutions to see what rates they are offering. Many websites now allow you to get a comprehensive accounting of local rates. Find a bank that has a history of lending on good terms.
    • Just because you do not qualify for a Fannie Mae Loan does not mean that you cannot get credit, it will just improve your terms.
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    Fill out the Uniform Residential Mortgage Application, Form Number 1003. Once you’ve found a lender they will ask you to fill out what is colloquially known as the “1003.” You will be asked to provide all of the aforementioned information about income and expenses.
    • The 1003 will include information about what type of property the loan is for (primary residence, secondary residence, or investment property); personal information, like name and Social Security number; and financial information, including a comprehensive accounting of income, assets, debts, and employment information. You can preview the form at Fannie Mae's website.
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    Review the Good Faith Estimate (GFE). Your 1003 will not be sufficient to confirm your mortgage, but it will allow the lender to give you a formal estimate of the terms of the loan. This estimate, which should include details about the rate of interest and total authorized loan amount, is known as the Good Faith Estimate, or GFE. Review it closely to determine if the terms are agreeable.
    • If you find the terms disagreeable you can try approaching another lender.
    • Alternatively, you can work on improving your debt-to-income ratio with one of the strategies listed above.[10]


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Categories: Managing Your Money | Mortgages and Loans