Fannie Mae Guidelines: Eligible VA-Guaranteed Mortgages

Which VA Loans Qualify for Fannie Mae Purchase

Not every VA loan can be sold to Fannie Mae. The loan must be guaranteed under Section 3710 of Title 38 of the United States Code, which covers the standard VA home loan program for fixed-payment mortgages. This excludes specialty VA programs like Native American Direct Loans or Adapted Housing Grants.

The loan must also be a fixed-rate mortgage with level payments. Adjustable-rate VA loans don't qualify for Fannie Mae purchase under this guideline, even if they have an initial fixed period.

Say you originate a 30-year fixed VA loan at 6.5% for a veteran buying a single-family home. As long as it meets the other requirements, this loan would be eligible for sale to Fannie Mae. But if you originate a 5/1 ARM VA loan, it wouldn't qualify under these guidelines.

VA Guaranty Amount Requirements

The VA guaranty must equal at least 25% of the original principal loan amount. This is separate from the veteran's entitlement calculation and focuses on the actual dollar amount the VA guarantees to the lender.

For most VA loans in 2024, the basic entitlement provides a 25% guaranty up to $766,550 in most counties. In high-cost areas, the guaranty can be higher but must still meet this 25% minimum threshold.

Here's how this works in practice: A veteran gets a $400,000 VA loan. The VA guaranty would be $100,000 (25% of $400,000), which meets Fannie Mae's requirement. But if the guaranty were somehow less than $100,000, the loan wouldn't be eligible for Fannie Mae purchase.

Loan Amount Limits

Fannie Mae caps VA loan amounts at the one-unit conforming loan limit for the county where the property is located. This applies regardless of whether you're financing a single-family home, duplex, triplex, or fourplex.

This creates an unusual situation. While the VA program itself allows higher loan amounts for multi-unit properties, Fannie Mae doesn't. If you're in a county with a $766,550 conforming limit, that's the maximum VA loan amount Fannie Mae will purchase, even for a fourplex that might normally support a higher loan amount under VA guidelines.

For example, in Los Angeles County where the 2024 conforming limit is $1,149,825, a VA loan for that amount on any property type would be eligible. But in a standard county with a $766,550 limit, that's the ceiling regardless of the property.

Interest Rate Buydowns

VA loans with temporary or permanent interest rate buydowns are eligible for Fannie Mae purchase, but the borrower must qualify at the note rate, not the bought-down payment rate.

The note rate is the actual interest rate written on the promissory note. The payment rate is what the borrower actually pays after the buydown is applied. Fannie Mae requires qualification at the higher note rate to ensure the borrower can handle payments when the buydown expires.

Consider a VA loan with a 6.5% note rate but a 2-1 buydown that reduces payments to 4.5% in year one and 5.5% in year two. The lender must qualify the borrower based on the 6.5% payment, not the reduced amounts. This protects both the borrower and the investor from payment shock.

Delivery Requirements

VA loans can only be delivered to Fannie Mae on a "negotiated basis." This means you can't deliver them through standard channels like the MBS program or regular whole loan commitments. Instead, you need a specific negotiated agreement with Fannie Mae.

This requirement makes VA loans less liquid than conventional loans. Not all lenders have negotiated agreements in place, which can limit your ability to sell these loans to Fannie Mae. You'll need to work with your secondary marketing team to understand your institution's specific arrangements.

The negotiated delivery requirement also means pricing and terms may differ from standard Fannie Mae products. Each agreement can have unique specifications for loan characteristics, delivery timelines, and documentation requirements.

Documentation Requirements

Beyond standard VA loan documentation, you'll need to verify the guaranty amount and ensure it meets the 25% threshold. This information appears on the VA Certificate of Reasonable Value (CRV) and the VA loan guaranty certificate.

The loan file must clearly show the Section 3710 guaranty. VA loans under other sections of Title 38 won't qualify, so documentation needs to specify the correct program. The VA Form 26-1880 (Request for Determination of Reasonable Value) should reference Section 3710.

You'll also need standard Fannie Mae documentation per the applicable guidelines for income, assets, credit, and property. The VA loan status doesn't exempt you from Fannie Mae's underwriting requirements - it just adds an additional layer of eligibility criteria.

Why These Restrictions Exist

Fannie Mae's limitations on VA loans reflect risk management and operational considerations. The 25% guaranty requirement ensures adequate credit enhancement, while the conforming loan limit maintains consistency with other Fannie Mae products.

The negotiated delivery requirement allows Fannie Mae to control volume and ensure proper servicing arrangements. VA loans have unique servicing requirements that differ from conventional mortgages, including specific foreclosure procedures and loss mitigation options.

The fixed-rate requirement aligns with Fannie Mae's traditional mortgage-backed securities structure. While the agency does purchase ARM loans, the VA ARM market may not provide sufficient volume to justify separate MBS pools.

Common Issues and Complications

The biggest challenge is the negotiated delivery requirement. Many lenders assume they can sell VA loans to Fannie Mae like any other eligible mortgage, only to discover they need special arrangements. Check your delivery options before originating VA loans you intend to sell to Fannie Mae.

Loan amount calculations can also create problems. In high-cost areas, veterans might qualify for VA loans above the conforming limit, but those loans won't be eligible for Fannie Mae purchase. This can affect your pricing and delivery strategy.

Documentation issues arise when lenders don't clearly establish the Section 3710 guaranty or fail to verify the 25% guaranty amount. The VA system has multiple loan programs, and not all qualify for Fannie Mae purchase.

Interest rate buydown qualification can trip up borrowers who expect to qualify at the reduced payment rate. Make sure borrowers understand they need to qualify at the full note rate, which may affect their purchasing power.

References

For the official guidelines, see B6-1-03: Eligible VA-Guaranteed Mortgages in the Fannie Mae Selling Guide.