If you are getting ready to buy a home and you do not have much credit history, you may face a new step before your loan can close, homeownership education. This step comes from recent changes at Fannie Mae, the large government sponsored enterprise that buys many mortgages from lenders in the United States.
In November, Fannie Mae updated its Selling Guide and announced that its Desktop Underwriter (DU) system will remove the old 620 minimum credit score requirement for many loans. DU will instead use its own analysis of risk and other data from the loan file. At the same time, the company updated how it handles nontraditional credit and homebuyer education. When no borrower has at least one credit account or installment account on the credit report, DU will tell the lender that homeownership education is required before closing. This change appears in Fannie Mae’s official Selling Guide update and has been summarized in industry coverage by sources such as HousingWire.
In this article, you will learn what the rule means, how it fits into the wider housing finance system, and what you need to do to meet the requirement without slowing down your purchase.
Fannie Mae, formally called the federal national mortgage association, is one of the main engines behind the U.S. mortgage market. It was established by congress and later chartered as a government sponsored enterprise to help keep long term housing credit available across the country. The federal housing finance agency is the main agency that oversees Fannie Mae today and uses its authority to set broad rules and regulation for how it operates in and after conservatorship.
Fannie Mae does not meet you in a branch office or take your application. Instead, it works in the secondary mortgage market. A local lender or bank makes a mortgage for a family. If that loan is eligible, the lender may later sell it to Fannie Mae or another investor. This process helps provide liquidity and keeps funds and cash flowing so more homebuyers can be served.
Under the new rule, if no borrower on your purchase file has at least one reported credit account or installment account, DU does not automatically deny you. Instead, DU adds a condition. It tells the lender that homeownership education is now required. The lender must then show that at least one borrower completed a qualifying course.
This is one effort among many efforts to balance access and safety. Removing the 620 floor can make mortgages more affordable for some buyers with limited credit history, but education and good documents help protect loan performance, accuracy, and long term value.
Today’s housing market is tight in many areas. Availability of affordable homes is limited, and buyers often face high cost and competition. At the same time, a lot of families have tried to avoid debt by using cash, savings, and debit cards instead of credit cards or personal loans. That may be good for daily borrowing decisions, but it can leave people with “thin” credit files.
Fannie Mae’s change responds to this reality. Instead of blocking otherwise strong homebuyers who fall just below a credit score line, DU can now look at the full picture. Industry writers at places like The Truth About Mortgage have noted that Fannie Mae and Freddie Mac are removing a hard 620 score cutoff but still using scores as an important part of the lending decision.
This shift does not remove risk, and it does not solve every affordable housing challenge. It does, however, give lenders more room to consider renters, first time buyers, and families who have avoided traditional credit but still want to join the ranks of homeowners.
To understand why homeownership education matters, it helps to know what happens to your mortgage after closing. Many whole loans do not stay on the books of the original lenders. Instead, they are grouped together and turned into mortgage backed securities that are sold to investors.
In simple terms, a large group of similar mortgages is placed into a pool. That pool becomes a security that can be traded. These products are often called mortgage backed securities MBS, or simply mbs. Fannie Mae and other enterprisesmay add loan guarantees or another form of guarantee on the timely payment of principal and interest. This structure helps keep the mortgage system liquid and supports the liquidity lenders need to make new loans.
Here is an example. James signs his closing papers on a starter home. Behind the scenes, his lender sells that loan into a pool that is then sold again as a security. Large companies, including more than one private company, and large banks might end up buying that security in the open sale process. As James pays on time, the cash flows help repay funds that investors put into the pool. When many borrowers pay as expected, the value of the pool stays stable and long term risk is kept in line.
A well prepared borrower is less likely to miss payments for avoidable reasons. Education helps you understand rate changes, taxes, insurance, and other cost items that affect your monthly budget. That is good for you, for the businessside of the industry, and for the health of the wider housing finance system.
Fannie Mae is not the only player in this space. Freddie Mac is another large firm in the same line of work. Together they are often called government sponsored enterprises. Both were created over past decades to keep mortgage credit flowing and both have been under tighter regulation since the financial crisis.
As explained in a recent summary at MortgageResearch.com, Fannie Mae is now taking a step that Freddie Mac took earlier, removing the hard 620 score floor in its automated system. That does not mean anyone with any credit history will be approved. It means each government sponsored enterprise will take a more complete look at the file, while still treating low scores with caution.
Major news outlets have followed these changes closely over the years. They often describe the connection between policy debates in congress, the choices at the federal housing finance agency, and how these rules affect ordinary homebuyers.
Behind all of this, capital markets play a central role. Large companies, banks, and other investors study pools of mortgage backed securities and decide whether to buy or sell them. Their employees look at past performance, interest rate trends, and future risk. When they believe a pool is sound, they are more willing to invest funds in it.
This trading helps provide liquidity to the system. When there is plenty of investor appetite, lenders typically find it easier to move loans off their balance sheets, which helps keep programs and credit availability strong for new buyers. When investors pull back, lending can become more limited, and it can be harder to keep loans affordable.
Because of this, Fannie Mae and Freddie Mac focus on supporting sound underwriting and clear rules. Homeownership education is one small, targeted effort that fits into that pattern. Well informed homeowners are more likely to make steady payments, which is good for both households and the market that stands behind them.
The new rule does not apply to every loan. It focuses on a specific group of borrowers, those with no traditional credit history.
You are likely to face this requirement if:
This can include long term renters who pay on time, people who prefer to use cash and debit instead of credit, and families who have built savings but avoided cards. You can be responsible with money and still show up in the data as having “nontraditional” credit. The education requirement does not say you are a bad risk. It says that, before closing, at least one borrower must show proof of completing a qualifying course.
Fannie Mae’s Selling Guide says that the course must be delivered by an independent provider that meets national standards or by a HUD approved counseling agency. It must cover key topics like budgeting, the mortgage process, closing, and the long term responsibilities of ownership. At the end, it must provide a certificate that can be kept in your loan file.
Credit.org is a HUD approved nonprofit counseling agency that offers these kinds of services. Our educators and counseling employees help borrowers understand how to read a loan estimate, how interest works over time, and how to plan for ongoing housing costs. You can learn more about our relationship with Fannie Mae at Credit.org’s Fannie Mae and NFCC partnership page, and you can review practical steps to prepare for buying in our homeownership preparation tips.
When you complete an eligible course, you receive a certificate. Your lender adds that document to your file so that any future review will see that the education condition was met with full accuracy.
If you are told that homeownership education is required, treat it as a time sensitive condition, just like income verification.
A simple process looks like this:
Most courses are online, so you can work through them outside normal office hours. There may be a small cost, though in some cases fees are reduced or waived for eligible borrowers. Compared to the size of the loan, this is a small investment that can help you avoid delays and protect your long term value as a new homeowner.
Yes, it can. If every borrower on the loan has no reported credit account or installment account, DU will treat you as having nontraditional credit and will require education. The course is there to support you, not to block you.
The current homeownership education trigger is written for purchase transactions that Fannie Mae will buy. Other rules can apply to refinances, so it is important to ask your lender how education fits into your specific situation.
No. Education is one part of a larger picture. You still need enough income, reasonable borrowing levels, and a property that meets program rules. The lender must still look at job history, savings, and many other factors. The education requirement does not override these standards.
You should not assume that any random course will count. The program must meet Fannie Mae’s standards and your lender must accept it. Using a HUD approved agency like Credit.org is a simple way to be sure. If you are unsure, ask your lender first, then sign up.
Large policy changes draw attention. Over the years, newspapers like the Washington Post have covered how Fannie Mae and Freddie Mac moved into and out of crisis, how jobs in the housing industry were affected, and how new rules were created each September or during other key dates in the crisis period. Those stories can give background, but for your own case, your lender and your counselor are better sources.
Some borrowers see homeownership education as another hoop to jump through. That view misses the bigger picture. The course helps you understand true, long term cost, spot difference between loans, and avoid common mistakes that can lead to trouble later. It can also help you see how your borrowing choices today fit into your future goals for work, family, and jobs.
Over past decades, Fannie Mae and Freddie Mac have historically played a large role in supporting the flow of credit and in keeping programs available, even in times of stress. Their work, and the work of the government, is not perfect, but it is part of a long term attempt to balance access and safety across the housing system.
We always advocate that home borrowers start with HUD-approved homebuyer education, whether their lender or mortgage type requires it or not. Fannie Mae's new requirement only underscores our longstanding belief that this education is a critical first step in the home buying process.
If you are ready to move forward, you can review upcoming workshops and classes through Credit.org’s homebuyer classes. Taking that step helps you meet Fannie Mae’s requirement, prepares you to handle your new mortgage, and places you in a better position to build long term stability and affordable homeownership.
