Loans · Fannie Mae Selling GuideTrading houses: how trade equity counts toward the down payment

In a property trade the buyer gives the seller another property as part of the purchase – sometimes written as two contracts with buyer and seller reversing roles. Fannie Mae's Selling Guide (B3-4.3-11, Trade Equity) accepts trade equity to supplement the borrower's minimum contribution if the seller's equity contribution for the traded property is a true-value consideration supported by a current appraisal. The equity is the lesser of the traded property's appraised value or the trade-in value both parties agree on, minus its outstanding mortgage balance and any transfer costs. The borrower still makes the minimum contribution from their own funds unless the LTV or CLTV is 80% or less, or the borrower is buying a one-unit principal residence and qualifies to use gifts, grants or employer funds for the minimum contribution. The trade equity is entered as a credit on the loan application, reducing the funds needed to close. For real property, the deed transferring the traded property must be recorded, and the lender gets a land records search confirming ownership and liens, plus proof of the title transfer and payoff of any mortgage the borrower owed on it.