Fannie Mae Guidelines on Conventional Loans

This guide covers Fannie Mae guidelines on conventional loans with no lender overlays in Illinois. Gustan Cho Associates Mortgage Group has no overlays on government and conventional loans. All of our government and conventional loan programs have no mortgage lender overlays.

As long as mortgage borrowers get an approve/eligible per DU Findings from Fannie Mae’s Automated Underwriting System that is all we go by.

We just go off Fannie Mae guidelines on conventional loans with no other lender overlays. The mortgage loan will get approved as long as the borrowers gets an approve/eligible per Fannie Mae Guidelines on conventional loans.

Fannie Mae Guidelines on Conventional Loans

Discover the essential Fannie Mae guidelines on conventional loans in 2025. Learn about loan limits, eligibility requirements, and tips to improve your chances of approval. Per Fannie Mae Guidelines on conventional loans, the following important factors weigh in on the automated underwriting system.

• Income
• Asset
• Debt
• Liabilities
• Credit Scores
• Payment History
• Waiting Period After Bankruptcy
• Waiting Period After Short Sale And/Or Foreclosure
• Waiting Period After Foreclosure

Unlike other mortgage companies and banks, Gustan Cho Associates has no overlays on government and conventional loans. Review exactly Fannie Mae guidelines on conventional loans for the year 2025 concerning credit score, DTI ratio, down payment, loan limits, and more. Read on to learn how to qualify for conforming mortgages for your dream home.

Fannie Mae Guidelines on Conventional Loans With No Lender Overlays

Now, we offer conventional loans with no lender overlays in Illinois and 21 other states. Conventional loan homebuyers require down payment of 5%. Borrowers need an approve/eligible per DU Findings from Fannie Mae’s and/or Freddie Mac’s Automated Underwriting System

Mortgage Lender With No Lender Overlays

Most Conventional lenders and banks have lender overlays. What are lender overlays? Overlays are additional mortgage lending requirements that are above and beyond those of Fannie Mae and/or Freddie Mac.

Conforming loan limits are very critical as they determine the availability and pricing of the mortgage. These limits are the most amount of debt that a mortgage lender is willing to go up to.

Conforming loans have lower rates and better offers compared to the majority which are classified as non-conforming. This is a huge advantage as it increases the number of loans that mortgage lenders are willing to supply. Fannie Mae and Freddie Mac set the mortgage guidelines for Conventional loans. Conventional lenders do have to meet the minimum mortgage lending requirements from the Automated Underwriting System but are allowed to set higher standards. Gustan Cho Associates has no overlays on Conventional loans as well as government loans.

Government Loan Programs

Here are the three government loan programs:

• FHA loans
• VA loans
• USDA loans

Getting Approve/Eligible Per AUS FINDINGS

Fannie Mae and/or Freddie Mac has higher lending requirements than FHA, VA, USDA loans insured mortgage loans. Waiting periods after a bankruptcy and foreclosure are as follows:

• 4 year waiting period after the recorded date of deed in lieu of foreclosure and/or short sale
• 4 year waiting period after Chapter 7 Bankruptcy discharged date
• 2-year waiting period after Chapter 13 Bankruptcy discharged date
• 4 year waiting period after Chapter 13 dismissal date
• 7 year waiting period after the recorded date of the foreclosure

As established by the FHFA for 2025, the maximum conforming loan limit for a single-family home in the US is $806,500 in the majority of the country. For high-cost areas, such as Hawaii and Alaska, the limit is $ 1,209,750. These limits are critical, as they determine the maximum loan amount that Fannie Mae and Freddie Mac are willing to purchase, which in turn sets the interest rate and loan terms offered by lenders.

Basic Fannie Mae Guidelines on Conventional Loans

Minimum credit scores for conventional mortgage loan programs is 620. Debt to income ratio requirements for conventional loan programs is normally capped at 50% to get an approve/eligible per automated findings. The cap on FHA-insured mortgage loan programs can be as high as 56.9%. All of these lending criteria will be picked up by Fannie Mae’s Automated Underwriting System and the results will be given per DU Findings

Mortgage Rates on Conventional Loans

Conventional loan mortgage rates are normally 0.50% higher than FHA insured mortgage loan mortgage rates. The biggest advantage with conventional loans is that mortgage insurance is not required if you as a borrower can put in a 20% down payment. For homebuyers who put less than 20% down payment, private mortgage insurance will be required on Conventional loans. Private Mortgage Insurance (PMI) rates vary depending on borrowers’ credit scores. FHA MIP is flat at 0.85% of the FHA Loan Balance Amount.

Cases Where Home Buyers Qualify For Conventional Loans With No Lenders Overlays But Not FHA Loans

There are cases where home buyers will qualify for Conventional loans BUT NOT FHA loans. If a home buyer had a mortgage as part of Chapter 7 Bankruptcy, the waiting period on Conventional versus FHA loans is different.

Here is how it works:

• There is a four year waiting period after Chapter 7 Bankruptcy to qualify for Conventional loans
• If a borrower had a mortgage or multiple mortgages as part of Chapter 7 Bankruptcy and those mortgages were not reaffirmed, they can qualify for a Conventional mortgage four years from the discharged date of the Chapter 7

However, the housing event needs to be finalized via:

• Foreclosure
• Deed-in-Lieu of Foreclosure
• Short Sale

HUD Guidelines On Mortgage Included In Bankruptcy

With FHA loans, homebuyers can qualify for FHA loans if they had mortgage part of Chapter 7 Bankruptcy under the following circumstances:

• Three year waiting period after recorded date of foreclosure and/or deed in foreclosure after the discharged date of the Chapter 7
• Three year waiting period after the short sale date after the Chapter 7 Bankruptcy discharged date

There are many instances where home buyers qualify for Conventional loans BUT NOT FHA loans due to the above guidelines.

Conventional Loans With No Lender Overlays Specific Products

Self Employed Borrower(s) with ONLY 1 Year Tax Returns are now eligible as long as we get approval per DU Findings. (1099 and Schedule C borrowers included where LP indicates only 1 Year  Tax Returns Required). Use Retirement Assets to Qualify as Income. Non-Qualifying Co-Borrower(s) Conventional and FHA to Qualify. Up to 10 Financed Properties. The lender paid MI to 95% LTV with 620 FICO Scores. Unlimited HARP 2.0 with Freddie & Fannie, including N/O/O and Condos. Cash Out with Properties Currently Listed on MLS.

Conventional Loans With No Lender Overlays On Appraisals

We accept Appraisal Transfer from all Appraisal Management Companies. No landlord History is needed to Qualify with Rental Income. Condo Spot Approvals. Professional College Graduate Home Program (1 Paystub). No Conventional Overlay Matrices to Decipher, Your AUS Approvals are Your Guidelines.

Updated Fannie Mae Guidelines on Conventional Loans

Fannie Mae-backed conventional loans are among the easiest to obtain for home loans. They can be particularly helpful to many Americans trying to achieve the American Dream.

Fannie Mae, as a government-sponsored entity, sets the standard for conforming loans, which helps maintain a level of balance in the mortgage industry and also eases the burden of homeownership.

If your interest lies in Fannie Mae conventional loan requirements in 2025, knowing these requirements would be essential as they range from your credit score, all the way to your down payment, and a lot more.

Fannie Mae Guidelines on Conventional Loans Simplified

This guide aims to simplify the comprehensive set of Fannie Mae guidelines on conventional loans into simpler, actionable terms. Suppose you’re a first-time buyer paying 3% of the loan or an investor aiming to acquire multifamily properties. In that case, we’ve synthesized the most important factors in the loan process to help you navigate it more easily. You can create a financial profile that meets these guidelines to increase your chances of approval.

What Are The Fannie Mae Guidelines on Conventional Loans?

Conventional loans are said to align with Fannie Mae’s conventional loan guidelines, forming the foundation of mortgages that are not government-backed. These loans are originated and sold to Fannie Mae by lenders to generate liquidity. The Fannie Mae Selling Guide and Eligibility Matrix outline the guidelines, focusing on ensuring the loans remain low-risk and affordable.

Unlike FHA or VA loans, Fannie Mae loans do not require federal insurance; however, they do require more stringent credit and reserve qualifications.

Updates for 2025 continue to reflect current economic trends, such as rising home prices, which result in higher conforming loan limits. The guidelines emphasize automated underwriting through DU for faster approvals, with manual options available in exceptional cases, while maintaining discretionary pillars within eligibility, such as net worth-to-loan value ratios. The outline promotes responsible lending, and prudent guidelines focus on ensuring that the borrower’s finances and the specified ratios all remain within the fiduciary coverage.

The Overview Of The 2025 Conforming Loan Limits

One of the first barriers within Fannie Mae conventional loan requirements is the overall amount of the loan, also known as the loan conforming limit. These limits are set each year by the FHFA in conjunction with the economic situation within the year that defines whether your loan is recognized as ‘conforming’ or if you have to apply for a jumbo loan, so that the loan is eligible for a Fannie Mae purchase loan.

• In 2025, the baseline conforming loan limit for a one-unit property in most counties in the U.S. is $806,500, representing a 5.2% increase from the 2024 limit of2024’s $766,550.
• In high-cost areas, such as certain parts of California and New York, the loan balance limit for one-unit properties is $1,209,750.
• The limits for multifamily properties are as follows: for two units, the baseline is $1,033,250.
• For three units, it is $1,248,750.
• For four units, it is $ 1,551,250.

These limits apply to mortgages sold to Fannie Mae in 2025, irrespective of the origination date. If the limits are exceeded, then the mortgage moves to non-conforming status, and in most cases, the interest rates are higher. Fannie Mae offers a tool that displays loan limits by county, allowing property owners to verify the applicable limits for their specific locations.

Requirements to Borrow Fannie Mae Loans

According to Fannie Mae guidelines for conventional loans, borrowers are required to meet specific fundamental legal and financial requirements. As a borrower, you must be of the legal age in your state to sign a mortgage note, and there is no maximum age limit.

All applicants are eligible to join; however, they are all required to present a valid Social Security number or ITIN and have their identities verified in accordance with federal regulations, such as the Patriot Act.

Proof of income stability is very important: lenders typically require at least two years of employment history, although some may consider offer letters for recent graduates or individuals switching careers. Self-employed borrowers are required to provide two years of tax returns. Citizenship is not a requirement; however, non-permanent residents must provide documentation to prove their legal status. In certain situations, trust funds are permitted, for example, in the case of a revocable living trust for estate planning purposes.

Fannie Mae Guidelines on Conventional Loans – Minimum Credit Score Requirements

A strong credit profile is the most important requirement for a Fannie Mae conventional loan. Most loans require a credit score of 620 or higher. However, borrowers with higher scores may be eligible for better terms, including lower rates and reduced costs of private mortgage insurance (PMI).

A score lower than 620 will disqualify a borrower from conventional options, leaving FHA loans as the remaining choice, which are much less stringent.

Fannie Mae uses FICO scores from all three credit bureaus and takes the middle score for qualification purposes. Newer credit history is particularly important; for instance, a late payment or a collection can be a cause for concern, although compensating factors such as large reserves may ease the consequences.

Minimum Credit Score by Loan Type and Underwriting Method

If transactions are structured along different lines or the loan-to-value (LTV) ratio and underwriting approach differ, the credit score assignment will be adjusted accordingly. Under the Automated Underwriting System (AUS), specifically the Desktop Underwriter (DU) loan system, a minimum FICO score of 620 is generally required. However, manual underwriting may adjust the required score for high-risk profiles.

Minimum Credit Scores by Loan Type and Underwriting Method

Credit minimums fluctuate according to transaction category, loan-to-value (LTV) ratio, and evaluation approach. With Desktop Underwriter (DU), the automated tool, a 620 threshold covers most cases. Manual underwriting imposes stricter levels for elevated-risk situations.

For principal residence purchases involving one-unit fixed-rate mortgages (FRMs), DU sets the minimum credit score at 620.

At the same time, manual underwriting requires a score of 640 or less for LTVs up to 75% and 680 for those exceeding 75%. Cash-out refinances on one-unit properties follow DU at 620, with manual requirements of 680 for ≤75% LTV and 720 above that. Second home purchases maintain DU at 620, manual at 660 for ≤75% LTV, and 680 for higher. Investment properties align with DU at 620, manual at 660 for ≤75% LTV, and 700 beyond. Adjustable-rate mortgages (ARMs) add 40 points to these baselines. Waiting periods after adversities include four years for Chapter 7 bankruptcies and seven for foreclosures, although these are comparatively brief compared to other programs.

Down Payment Requirements for Conventional Loans Under Fannie Mae

Fannie Mae guidelines on conventional loans facilitate entry with a 3% minimum down payment for owner-occupied homes, appealing to novice buyers. This dispels the outdated notion of a 20% necessity, as PMI bridges the difference until equity reaches 20%.

Relatives’ or partners’ gifts fully contribute to down payments without repayment obligations or holding periods.

Larger down payments curtail PMI duration and enhance rate competitiveness. Seller contributions are restricted to 3-9% of the loan amount, scaled by the initial equity.

Minimum Down Payments for Different Property Types

Down payment stipulations in Fannie Mae guidelines on conventional loans vary according to occupancy and unit count, reflecting risk assessments. Primary residences with one unit require a 3% down payment for fixed-rate mortgages or a 5% down payment for ARMs.

For primary setups with two to four units, the range climbs to 15-25%. Second homes on a single unit necessitate a 10% increase.

In comparison, one-unit investment properties require a 15% investment, escalating to 25% for two- to four-unit investments. HomeReady initiatives preserve the 3% floor for income-eligible applicants, incorporating diverse revenue streams such as boarding arrangements.

Debt-to-Income (DTI) Ratio Guidelines for Fannie Mae Loans

The debt-to-income (DTI) ratio, which compares monthly obligations against gross income, assesses repayment capacity in Fannie Mae’s conventional loan requirements. The conventional ceiling is 36%, expandable to 50% via DU for profiles bolstered by ample reserves or exemplary credit. Manual processes adhere to around 45%.

DTI computation incorporates the prospective mortgage, alongside taxes, insurance, and ongoing liabilities such as auto financing.

Aim for a ratio below 43% for optimal prospects, as lenders examine both front-end (housing-exclusive) and back-end ratios. For ARMs, add 40 points to the minimum requirements. After bankruptcy, there are 4-year wait periods for Chapter 7, and for foreclosures, there are 7-year wait periods. This time is shorter than some alternatives but still substantial.

Down Payment Requirements on Conventional Loans Under Fannie Mae

Fannie Mae guidelines are designed to be widely accessible. It permits a 3% minimum down payment for principal residences, making it preferable for first-time buyers.

This replaces the myth of a 20% down payment, as PMI is designed to cover the gap until you achieve 20% equity. Family gifts are acceptable and do not require any special seasoning.

Lower PMI and better rates are achieved through higher down payments. The seller concession limit ranges from 3% to 9% of the loan amount, depending on the borrower’s equity position.

Minimum Down Payments for Different Property Types

Disbursing how much you have spent changes according to how many units are occupied and how much income they derive. ‘Fannie Mae’ takes an ample rise throughout the investment…

• Primary Residence (1-Unit): 3% for fixed-rate mortgage and 5% for Adjustable-rate mortgage (ARM).
• Reporting HomeReady loans, the 3% minimum is offered, as well as board income.
• Primary Residence (2-4 Units): 15 to 25 Percent.
• Second Homes (1-Unit): 10%.
• Investment Properties (1-Unit): 15%.
• Investment Properties (2-4 Units): 25%.

For HomeReady loans, even lower-income borrowers will receive the 3% minimum, assuming they have flexible income sources, such as boarding income.

Debt-to-Income (DTI) Ratio Guidelines for Fannie Mae Loans

To measure how much you owe, the debt-to-income ratio is used. Monthly debts and gross income determine it. Fannie Mae has several rules that these loans must meet, and the total monthly payment should be below $36,000.  Compute the monthly ‘DTI’ mortgage, which includes taxes, insurance, and all other monthly debts, such as existing car loans. To qualify, aim for a ratio of less than 43%. Most lenders will overly check both the DTI and the debt ratio.

Loan Value (LTV) Ratio, CLTV Ratio, and HCLTV Ratio in Fannie Mae Guidelines

LTV ratios determine how much equity you possess, and Fannie Mae keeps them capped to minimize the risk of defaults. CLTV and CLTV ratios consider secondary financing, while HCLTV ratios consider the potential of drawing a HELOC. Maximums depend on credit, the type of property, and its purpose.

Maximum Ratios on Purchases and Refinancing

For Primary Resident Purchase Transactions and Cash-Out Refinancing, LTV stands at 97% (3% equity) and drops to 80% for Cash-Out Refinancing.

Here’s the summary:

• Purchase (Principal, 1-Unit FRM): LTV 97%.
• Limited Cash-Out Refinance (Principal): LTV 97%.
• Cash-Out Refinance (Principal): LTV 80%.
• Purchase of Second Home: LTV 90%.
• Purchase of Investment Property (1-Unit): LTV 85%.

With CLTVs up to 105%, the Community Seconds program becomes available. (2-12 months) Payment reserves are a common requirement for multiple properties with elevated loan-to-value ratios.

Special Programs Under Fannie Mae Conventional Loan Guidelines

Fannie Mae has developed specialized programs to increase accessibility within its own conventional loan programs.

Low Down Payment HomeReady Program for Buyers Earning Below Area Median Income

Borrowers earning at most 80% of the area median income can qualify for HomeReady and 3% down payment loans with flexible underwriting. HomeReady accepts non-conventional income documentation and requires a minimum credit score of 620. For deliveries starting March 1, 2025, at least one borrower must be a first-time homebuyer to be eligible for LLPA credit.

HomeStyle Renovation Taking After Bought Repairable Homes

This program incorporates renovation costs into the loan, with 75% of the after-repair value, and loan-to-value ratios that mirror standard purchases. Ideal for individuals looking to invest in fixer-uppers. Minor updates can be completed without contractor bids, with a cap of $50,000.

Vacant and Occupied Property for Fannie Mae Loans

• Guidelines on Fannie Mae Loans support 1-4 unit properties consisting of a site-built single-family home, a condo, a co-op, a PUD, and a manufactured home on a permanent foundation.
• The appraisal ranges of $300 to $500 are standard.
• However, for many loans within a specific profile, it can be waived with a no-DU appraisal.

Occupancy Rules

The most flexible are primary residences. Second homes typically require a down payment of at least 10% and proof of non-primary occupancy. In contrast, investments typically require a down payment of at least 15% to 25% and do not allow for cash-out refinances. No investor cash-out refinance loans are allowed on co-ops.

Step-by-Step Process on Underwriting Conventional Loans for Fannie Mae

Underwriting assesses your eligibility for a Fannie Mae conventional loan via DU (80% of loans) or a manual review. The necessary documents include pay stubs, tax returns, bank statements, and asset verification. Anticipate a 30-45 day timeframe from application to closing. Title insurance ensures that there are no legal ownership issues, and the escrow manages the funds.

Fannie Mae loans do not charge any upfront fees, offer adjustable and fixed further loan periods of 15-30 years, and have great competitive rates due to secondary market liquidity. Only FHA loans are lenient on credit and DTI, and the PMI is costlier.

Receiving Conventional Loans Under Fannie Mae Guidelines

What are the credit score requirements for Fannie Mae Conventional Loans, and what are they in 2025?

Fannie Mae loan DU-approved loans require a minimum credit score of 620. For manual underwritings, the score can range from 640 to as high as 720, depending on the LTV.

Fannie Mae Guidelines For Conventional Loans: Is There a 3% Down Payment?

• Yes, for primary-owned homes via the standard or HomeReady programs, as long as the credit and DTI criteria are met.

How Much is the Fannie Mae Conventional loan in 2025?

• One-unit properties in most areas are priced at $806,500, and in prominent areas, at $1,209,750.

Does Fannie Mae allow gift funds for down payments on conventional loans?

• Yes, when it comes to gifts from family and couples, repayment is unnecessary, and it is acceptable to use the entire amount toward the down payment.

How long after bankruptcy can I qualify for a Fannie Mae conventional loan?

• Borrowers must wait four years after filing Chapter 7 and two years after filing Chapter 13.

Does Fannie Mae eliminate PMIs for conventional loans?

• Yes, the conventional loan does require PMI if you make a down payment of less than 20%, but it can be paid off once you reach 20% equity.

In short, Fannie Mae guidelines on conventional loans help you secure the right financing. Opportunities remain with the new limits and the HomeReady financing program slated for 2025. Lenders can be contacted to prequalify for a loan; the journey to home ownership starts now.

Refinancing FHA To Conventional To Avoid FHA MIP

There are many homeowners who purchased their home several years ago with FHA loans. Many homeowners in Illinois, California, California, Ohio, Kansas, Alabama, Georgia, Texas, New Mexico, Arizona, Arkansas, Minnesota, Wisconsin, Michigan, Iowa, Colorado, and other parts of the country has seen their home values increase year after year.

Many homeowners have seen their property values increase where they have over 20% plus in home equity where they can refinance their current FHA Loans to a Conventional Mortgage.

By doing so, they can eliminate the hefty FHA Mortgage Insurance Premium. Gustan Cho Associates has no lender overlays on government and conventional loans. Home Buyers needing to qualify for home loans with a lender with no overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.