Fannie Mae released its May 2026 Selling Guide update, Announcement SEL-2026-05, introducing policy changes in four key areas that affect lenders originating conventional conforming loans. The updates touch on remote online notarization, construction-to-permanent financing, borrower tax obligations, and co-op project standards. While these changes are technical in nature and primarily directed at lenders, they have real implications for borrowers pursuing digital closings, new construction financing, or co-op purchases.
Remote Online Notarization Requirements
Fannie Mae updated its requirements for remote online notarization (RON), which allows borrowers to sign and notarize mortgage documents digitally without being physically present with a notary. The revisions clarify which states and platforms are acceptable for RON transactions and tighten documentation requirements to ensure enforceability. As more states enact permanent RON legislation, Fannie Mae's updated standards aim to provide lenders with a clearer compliance framework while supporting the continued expansion of digital mortgage closings.
For borrowers, this update is largely positive. A digital closing through a RON-compliant platform can be completed from anywhere with a reliable internet connection, eliminating the need to schedule an in-person appointment at a title company or attorney's office. This is particularly valuable for remote buyers purchasing properties in other states, military families on deployment or PCS orders, and borrowers with mobility limitations.
The practical requirements from Freddie Mac's side: RON must occur on a platform approved by the relevant state's notarial authority, the notary must be commissioned in a state that authorizes RON, and the session must include identity proofing, a real-time audio-video connection, and tamper-evident technology that seals the document after execution. Not all title companies and settlement agents are RON-capable, so borrowers pursuing a digital closing should confirm their settlement agent's capabilities early in the process.
Single-Closing Construction-to-Permanent Loans
The guide update modifies the rules governing single-closing construction-to-permanent loan modifications -- transactions where the construction financing and permanent mortgage are combined into a single closing event. The revisions clarify the conditions under which modifications to loan terms are permissible during the construction phase without requiring a new closing, reducing friction for borrowers and lenders managing new-home construction timelines. This is particularly relevant given ongoing delays in the new construction pipeline.
A single-close construction loan works as follows: you close on both the construction financing and the permanent mortgage simultaneously before construction begins. During construction, typically 12-18 months, the lender advances funds in draws as construction milestones are completed. At completion, the loan automatically converts to a permanent mortgage without a second closing. The advantage is locking in a permanent rate before construction begins -- a meaningful benefit in an environment where rates could move significantly over a 12-18 month construction timeline.
The challenge the SEL-2026-05 update addresses: construction timelines frequently extend beyond initial projections due to permitting delays, material shortages, or subcontractor availability. When a construction timeline slips past the original completion date, loan modifications may be required. The updated guidance clarifies exactly which types of modifications are permissible without triggering a new closing, giving borrowers and lenders more flexibility to manage construction delays without the cost and complexity of a full re-closing.
IRS Tax Installment Agreements
Fannie Mae updated how lenders must treat IRS tax installment agreements when underwriting a borrower's debt-to-income ratio. Under the revised guidance, lenders must include the monthly installment payment amount in the borrower's total monthly debt obligations when the agreement is active, regardless of whether the tax debt is secured. The change brings greater consistency to how tax repayment obligations are handled across different lenders and loan types.
For borrowers on IRS payment plans, this is an important underwriting consideration. If you have an active installment agreement with the IRS, the monthly payment on that agreement will be counted against your debt-to-income ratio just like a car payment, credit card minimum, or student loan payment. This could reduce your qualifying loan amount if the installment payment is substantial.
For example, if your gross monthly income is $8,000 and you have an IRS installment of $500/month, that $500 counts toward your back-end DTI limit. At the standard 43% conventional DTI limit, you have $3,440 available for all monthly debt obligations including the mortgage. After the $500 IRS payment, only $2,940 is available for your housing payment and other debts -- materially less than if the IRS payment were excluded.
Co-Op Project Eligibility Standards
The fourth area of SEL-2026-05 addresses co-operative housing project eligibility -- the standards Fannie Mae uses to determine whether it will purchase mortgages on units in co-op buildings. Co-ops differ from condominiums in that buyers purchase shares in a corporation that owns the building rather than directly owning a unit. Fannie Mae's updated co-op project standards include revised documentation requirements and updated financial health thresholds for the underlying co-op corporation.
Co-op financing is primarily relevant in a handful of major markets where co-ops are prevalent -- most notably New York City, where co-ops represent a significant portion of the ownership housing stock. For buyers pursuing co-op units in these markets, the updated Fannie Mae standards affect which co-op buildings are eligible for conventional conforming financing, which in turn affects buyer access and pricing.
What These Changes Mean for the Average Borrower
Most borrowers going through a standard purchase or refinance transaction will not directly encounter these specific changes. The RON requirements are most relevant for borrowers choosing a digital closing. The construction-to-permanent modifications are specific to buyers building new homes. The IRS installment agreement rule affects borrowers with active tax repayment plans. The co-op standards are primarily relevant in New York and a few other major markets.
What matters more broadly is understanding that Fannie Mae's Selling Guide is the rulebook lenders follow when originating conforming loans they intend to sell to the GSE. Changes to the guide translate directly into changes in what lenders can and cannot do when processing your application. When a lender tells you that certain documentation is required or that a particular aspect of your financial situation needs to be addressed in a specific way, they are often following Fannie Mae or Freddie Mac guidelines -- not just internal policy.
Conforming Loan Standards and Why They Matter
Fannie Mae and Freddie Mac together guarantee or hold approximately 70% of all outstanding residential mortgages in the United States. Because they purchase so many loans from originating lenders, their guidelines effectively set the standards for the conforming mortgage market. A lender that originates a loan that does not meet Fannie Mae guidelines risks being unable to sell it, forcing them to hold it on their own balance sheet -- a risk few lenders want to take. This is why Fannie Mae's Selling Guide updates, however technical, ripple across the entire conventional mortgage market.
Frequently Asked Questions
What is a Fannie Mae Selling Guide?
The Selling Guide is Fannie Mae's comprehensive rulebook that tells mortgage lenders exactly how to originate, document, and underwrite conventional conforming loans that Fannie Mae will agree to purchase. It covers everything from income documentation requirements to acceptable property types, appraisal standards, and closing procedures. Updates like SEL-2026-05 are announced periodically when policies change.
How does remote online notarization work?
RON allows you to sign and notarize mortgage closing documents digitally, with a licensed notary conducting the session via secure video conference. You connect with the notary online, present identity documents for verification, and sign electronically using a digital signature platform. The notary electronically notarizes the documents in real time. The entire session is recorded and the documents are sealed with tamper-evident technology.
Do I have to use RON if my lender offers it?
No. RON is an option, not a requirement. Traditional in-person or hybrid closings (where some documents are signed in person and others electronically) remain fully permissible. RON availability also depends on the laws of the state where the property is located and the capabilities of your title company or settlement agent.
How does a single-close construction loan differ from a two-close loan?
A single-close (or one-time-close) construction loan combines the construction financing and the permanent mortgage into one transaction at a single closing. A two-close loan requires separate closings -- one for the construction phase and one when construction is complete and the loan converts to permanent financing. Single-close loans save on closing costs and eliminate the rate risk of needing to qualify for a permanent mortgage after construction, but two-close loans can sometimes offer more rate-shopping flexibility at the conversion stage.
If I'm on an IRS payment plan, can I still get a mortgage?
Yes, in most cases. Having an IRS installment agreement does not automatically disqualify you from a conventional mortgage. However, the monthly payment amount will be factored into your debt-to-income ratio calculation, which can reduce your qualifying loan amount. You must also be current on all payments -- lenders will typically require documentation showing the agreement is in good standing with no missed payments.
Source: Fannie Mae, Selling Guide Announcement SEL-2026-05, May 2026.