Paul Sanchez
Fannie Mae's mortgage insurance requirements vary depending on the type of loan and the loan-to-value (LTV) ratio. For conventional mortgages, mortgage insurance is not required if the down payment is at least 20%. However, if the LTV ratio exceeds 80%, Fannie Mae's Congressional Charter requires credit enhancement through mortgage insurance or another acceptable form. Lenders are responsible for obtaining and providing evidence of the required mortgage insurance or loan guaranty. The eligibility requirements for mortgage insurers are outlined in Fannie Mae's Private Mortgage Insurer Eligibility Requirements (PMIERs), which are regularly revised and updated.
| Characteristics | Values |
|---|---|
| When mortgage insurance is required | When the LTV ratio is more than 80% |
| When mortgage insurance is not required | When the down payment is 20% |
| Who is responsible for obtaining mortgage insurance | The lender |
| Who is responsible for ensuring the use of approved mortgage insurance forms | The lender |
| Who is responsible for issuing guidance to approved insurers | Fannie Mae |
| Who is responsible for revising eligibility requirements for mortgage insurers | Fannie Mae and Freddie Mac |
| Minimum down payment | 3% |
| Minimum credit score for a conventional mortgage | 620 |
| Maximum conforming loan limit for a single-family home | $806,500 |
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What You'll Learn
Fannie Mae's Private Mortgage Insurer Eligibility Requirements (PMIERs)
The Federal Housing Finance Agency (FHFA) regulates Fannie Mae, Freddie Mac, and the 11 Federal Home Loan Banks. These government-sponsored enterprises provide more than $8.4 trillion in funding for the U.S. mortgage markets and financial institutions. On July 10, 2014, the FHFA sought public input on draft eligibility requirements for private mortgage insurers that provide mortgage insurance on loans acquired by Fannie Mae or Freddie Mac. The public input period lasted 60 days and closed on September 8, 2014.
Fannie Mae and Freddie Mac have periodically reviewed and updated their PMIERs since first issuing aligned PMIERs in 2015. For instance, on April 17, 2015, they published revised PMIERs on their websites. On June 30, 2015, they further revised the PMIERS to include financial requirements for loans with lender-paid mortgage insurance. The Enterprises completed their analysis of the existing PMIERs and, after consulting with mortgage insurance companies, published revised PMIERs on September 27, 2018.
Fannie Mae has issued guidance to approved insurers to amend the PMIERs or provide updates and clarifications to PMIERs provisions. Under the FHFA's oversight, Fannie Mae and Freddie Mac issued updated PMIERs guidance effective March 31, 2025, which supersedes and replaces PMIERs Guidance 2021-01. The FHFA also announced that Fannie Mae and Freddie Mac would be issuing updates to the PMIERs to revise the available asset requirements. These revisions aim to address the risk of on-balance sheet assets losing value in a stress scenario. The updated PMIERs will be phased in and are scheduled to be fully implemented by September 30, 2026.
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Conventional mortgages and mortgage insurance
Mortgage insurance is an insurance policy that covers the lender in the event of a default. It lowers the risk to the lender of offering a loan, allowing borrowers to qualify for loans that they might not otherwise be able to get. There are several different kinds of loans available to borrowers with low down payments. Depending on the type of loan, mortgage insurance may be paid in different ways.
Conventional loans, also known as conforming loans, meet the eligibility criteria set by Fannie Mae and Freddie Mac. They adhere to certain loan limits, credit score requirements, and debt-to-income ratios that differ from government-backed options such as FHA or VA loans. Unlike FHA and VA loans, conventional loans are not government-insured, so they require higher credit scores and down payments. Conventional loans typically require a debt-to-income ratio of lower than 43%, although some lenders may allow up to 50%. A typical down payment on a conventional loan is 20%, although some lenders may accept as little as 5% down.
Generally, a down payment of 20% or more on a conventional loan means that private mortgage insurance (PMI) is not required. However, if the down payment is less than 20%, PMI is usually necessary. PMI rates vary by down payment amount and credit score but are generally cheaper than FHA rates for borrowers with good credit.
Fannie Mae's Congressional Charter requires credit enhancement on mortgage loans it acquires with unpaid principal balances exceeding 80% of the mortgaged property's value. This requirement is usually met by private mortgage insurance. Mortgage insurance covers the first losses on mortgage loans that exceed 80% loan-to-value (LTV) and reduces potential losses for Fannie Mae and Freddie Mac in the event of foreclosure.
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Mortgage insurance costs
Mortgage insurance is usually required for loans where the borrower has a low down payment. This is to protect the lender in case of the borrower's default on the loan. The cost of mortgage insurance can vary depending on several factors, including the loan amount, the type of loan, and the borrower's credit score.
When it comes to Fannie Mae loans, mortgage insurance costs can vary depending on the specific loan program and the borrower's financial situation. Here are some key points to consider:
- Down Payment—For a conventional Fannie Mae loan, mortgage insurance is typically not required if the borrower makes a down payment of at least 20%. However, if the down payment is less than 20%, mortgage insurance will likely be required, and the cost will depend on the loan-to-value (LTV) ratio.
- Loan-to-Value Ratio—Fannie Mae requires mortgage insurance for loans with an LTV ratio greater than 80%. The cost of mortgage insurance will depend on the specific LTV ratio and the loan program. For example, Fannie Mae's HomeReady® loan program may require a lower down payment of 3% but may also result in higher private mortgage insurance (PMI) premiums.
- Credit Score—A higher credit score can help qualify for better mortgage rates and lower PMI premiums. A minimum credit score of 620 is typically required for a conventional mortgage, but a higher score may reduce mortgage insurance costs.
- Loan Type—The cost of mortgage insurance can also depend on the type of Fannie Mae loan. For example, a conventional mortgage may cost between $30 and $70 for every $100,000 borrowed, while a loan backed by the Federal Housing Administration (FHA) may have different requirements and costs.
- Payment Structure—Mortgage insurance can usually be paid in several ways, such as monthly installments, a lump sum, or by including it in the interest rate. The chosen payment structure may also impact the overall cost of the mortgage insurance.
- Eligibility and Requirements—Fannie Mae has specific eligibility requirements for mortgage insurers, and only approved insurers can provide mortgage insurance for their loans. Lenders are responsible for ensuring that the required mortgage insurance is in place and that it complies with Fannie Mae's guidelines.
It is important to note that mortgage insurance requirements and costs can change over time, and borrowers should refer to the most up-to-date information provided by Fannie Mae and consult with their lender to understand their specific mortgage insurance obligations.
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Lender requirements
Fannie Mae requires borrowers to have mortgage insurance if their refinance loan-to-value (LTV) ratio is more than 80%. This is typically required when a borrower makes a down payment of less than 20% of the home's purchase price. There are two types of mortgage insurance: Borrower-Paid Mortgage Insurance (BPMI) and Lender-Paid Mortgage Insurance (LPMI). With BPMI, the borrower directly pays the mortgage insurance premium. Conversely, with LPMI, the lender pays the premium but may adjust the loan terms, often charging a higher interest rate to the borrower.
Fannie Mae also requires borrowers to have hazard/homeowner's insurance, flood insurance (for properties in designated flood zones), and title insurance. The amount of hazard/homeowner's insurance should be equal to the replacement cost of the property or the current loan amount. This ensures that in the event of a total loss, there are adequate funds to rebuild. For flood insurance, the coverage should be either the outstanding balance of the mortgage or the maximum insurance available from the National Flood Insurance Program (NFIP), whichever is less.
In addition to insurance requirements, Fannie Mae may require borrowers to have cash reserves, also called mortgage reserves. This involves proving that the borrower has up to six months of mortgage payments set aside in case of financial difficulties. This requirement is typically triggered by low credit scores and a small down payment.
Fannie Mae also has specific requirements for properties within condominium projects or Planned Unit Developments (PUDs). These properties must have additional insurance for shared spaces. Furthermore, the master property insurance policy must provide for claims to be settled on a replacement cost basis. Actual cash value-based policies are not acceptable.
Lastly, Fannie Mae sets lower LTV ratio limits on refinancing for second homes and investment properties. It is important to carefully review and adhere to all of Fannie Mae's lender requirements to ensure loan approval and avoid potential financial issues.
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Fannie Mae loan limits
Fannie Mae and Freddie Mac are restricted by law to purchasing single-family mortgages with origination balances below a specific amount, known as the "conforming loan limit" (CLL) value. Loans above this amount are called jumbo loans. The conforming loan limit value for mortgages that finance single-family one-unit properties increased from $33,000 in the early 1970s to $417,000 for 2006-2008. The limit values were 50% higher for four statutorily designated high-cost areas: Alaska, Hawaii, Guam, and the US Virgin Islands. Since 2008, legislative acts have increased the conforming loan limit values in certain high-cost areas in the US.
The Federal Housing Finance Agency (FHFA) publishes annual conforming loan limit values that apply to all conventional loans delivered to Fannie Mae. These include baseline and high-cost area loan limits, which vary by geographic location. The conforming loan limits for 2025 have increased and apply to loans delivered to Fannie Mae in 2025, even if they were originated prior to 1/1/2025. The 2025 conforming loan limit values have been set under the Housing and Economic Recovery Act of 2008 (HERA) formula.
Fannie Mae's Congressional Charter requires credit enhancement on mortgage loans it acquires with unpaid principal balances in excess of 80% of the mortgaged property's value. This requirement is usually met by the provision of private mortgage insurance.
Fannie Mae and Freddie Mac have issued revised Private Mortgage Insurer Eligibility Requirements (PMIERS) under the guidance of the FHFA. These eligibility requirements are for private mortgage insurers that provide mortgage insurance on loans acquired by Fannie Mae or Freddie Mac.
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Frequently asked questions
Mortgage insurance is not always required for a Fannie Mae loan. However, if the loan exceeds 80% of the value of the underlying property, mortgage insurance is typically necessary.
The cost of mortgage insurance for a Fannie Mae loan, also known as PMI, is typically between $30 and $70 for every $100,000 borrowed.
Yes, Fannie Mae may accept other forms of credit enhancement instead of mortgage insurance. These alternatives must adequately reduce the risk for Fannie Mae in the event of foreclosure.
A higher credit score can help you qualify for better mortgage rates and lower private mortgage insurance premiums. However, a minimum score of 620 is required for a conventional mortgage.
