What is Fannie Mae (FNMA)?

The Federal National Mortgage Association, commonly known as Fannie Mae, is a government-aligned corporation created to improve opportunities for potential homebuyers looking to secure affordable home financing. 

Fannie Mae was started in 1938, during the Great Depression, as a way to help low- to middle-income buyers purchase a home. They are able to do this by increasing the supply of available funds for home mortgages. To this day, Fannie Mae’s goal is to provide affordable mortgages to homebuyers across the country. 

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The goal of Fannie Mae is to bring liquidity to the housing market. 

Fannie Mae does not originate mortgage loans to borrowers but guarantees and purchases mortgage loans from lenders. The funds acquired by lenders from these transactions allows lenders to offer more new loans to more people. 

This makes it easier for millions of buyers to acquire homes, especially those facing financial challenges when considering a home purchase.  

Fannie Mae’s involvement in the housing market ensures capital and reduces risk for lenders when issuing loans to homebuyers. Those risks could jeopardize transactions and potentially paralyze the housing market. 

Working with large banks and third-party originators, Fannie Mae established a set of guidelines and requirements borrowers must meet before they can receive a loan. These guidelines are designed to reduce risk and keep stability in the housing market. The guidelines include: 

• A down payment option of as little as 3% 

• Debt-to-income ratio that does not exceed 45% 

• Proof of cash reserves of at least two months of mortgage payments 

Freddie Mac was created as a competitor of Fannie Mae. They are similar organizations with the key difference being that Freddie Mac almost exclusively purchases loans through smaller “thrift” banks and lenders. 

Fannie Mae buys loans and bundles them as mortgage-backed securities (MBS) to sell on the bond market. 

Selling these MBSs to investors on the bond market creates a secondary mortgage market and generates Fannie Mae’s revenue. While this is the business of Fannie Mae, it is not the purpose. 

A few of Fannie Mae’s popular programs are HomePath®, HomeReady®, Flex Modification® and the HomeStyle® Renovation. 

In the event of a foreclosure, Fannie Mae will take control of the home with the goal being to resell the home as quickly as possible to preserve the stability of the neighborhood. Fannie Mae does this through its HomePath®  website, prioritizing owner-occupants when selling. 

If you are a low- to moderate-income homebuyer looking to get a mortgage with a low down payment option, HomeReady® might be able to help. If you fulfill all the requirements, your down payment option could be as low as 3%.* 

Flex Modification® is intended to offer payment relief to homeowners who can no longer afford their monthly mortgages. By modifying mortgage interest rates, loan terms or monthly mortgage payment, eligible homeowners can decrease their payments up to 20%. Loan modifications since September 2008 on behalf of Fannie Mae and similar organization Freddie Mac have helped more than 2.4 million residents avoid foreclosure and stay in their homes. 

If you are looking to purchase a home that needs repairs or renovations, Fannie Mae’s HomeStyle® loan can combine the cost of renovations and your home into one single mortgage. The funds received can cover a wide range of renovations, including remodels, adding new rooms and even building accessory dwelling units. Without a minimum dollar amount on renovations, borrowers can make any size of needed improvements. 

To be eligible for a Fannie Mae mortgage, make sure that you meet all the required guidelines and apply for a mortgage with a lender that offers Fannie Mae loans, like Rate. 

Meet all the guidelines and ready for a mortgage? Apply now! 

^{* The HomeReady Mortgage is available to borrowers with 80% or less of area median income for purchase or limited cash-out refinance transactions on one to four unit properties. Additional property restrictions and minimum borrower contribution requirements apply and vary based on number of units of subject property. Occupant borrowers may own one other financed residential property in addition to subject property at the time of closing. Minimum FICO score requirements apply. Up to six months of reserves may be required based on the factors of borrowers' eligibility including but not limited to credit score, debt to income, and loan type. If all co-borrowers are first time homebuyers or when using non-traditional credit to qualify then at least one borrower will be subject to additional requirements regarding homeownership education or counseling from an approved source. Applicants subject to credit and underwriting approval. Not all borrowers will be approved. Restrictions apply. Contact your loan officer for more information and to determine your eligibility.}