The Federal National Mortgage Association—better known as “Fannie Mae”—is a government-sponsored entity (GSE) that supports the U.S. housing market by purchasing mortgages from lenders. This process provides liquidity and enables lenders to offer more loans to borrowers. One of the main benefits of working with Fannie Mae-backed loans for your investment property includes flexible down payments.
It’s also possible to use 1031 exchange properties with Fannie Mae mortgages. To succeed in this endeavor, it’s essential to understand the key Fannie Mae guidelines for a 1031 exchange.
You must meet standard underwriting criteria if you’re a 1031 exchange borrower. These include your credit and income status, as well as asset requirements. Fannie Mae still wants to know your creditworthiness and income information, even if you use an LLC for your relinquished and replacement properties.
Fannie Mae loans support the acquisition of residential properties. Within a 1031 exchange, investment properties can include:
Remember that, under IRS rules, primary residences and second homes aren’t eligible for a 1031 exchange unless they’re used for investment purposes.
The IRS’ 1031 exchange deadlines are the same when applying for a Fannie Mae loan. Specifically:
Your loan application should be filled out, submitted, approved, and underwritten within the 180-day escrow period.
You cannot receive proceeds from selling your relinquished property in a like-kind exchange. This is why the IRS mandates that a Qualified Intermediary (QI) must take charge of those proceeds and pay them out when your replacement property closes. The lender must be informed about the exchange and QI involvement if you're applying for a Fannie Mae-backed loan.
Fannie Mae's underwriting conditions for a 1031 exchange require careful and extensive documentation. Some examples of what’s needed include:
You must follow the IRS regulations if you’re considering a Fannie Mae-backed loan for a 1031 replacement property. You must also understand the Fannie Mae requirements supporting borrower eligibility.
Be sure to work with tax, brokerage, and attorney experts familiar with like-kind exchanges and how Fannie Mae financing fits in with the process. These individuals can help you with eligibility criteria, documentation, property types and more. With the proper planning and knowledge, it’s possible to tap into Fannie Mae lending as part of your 1031 exchange strategy to help you build long-term wealth.
The tax and estate planning information offered by the advisor is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.