Fannie Mae has updated its "highest and best use requirements" for the Uniform Appraisal Dataset 3.6 standard currently being implemented. These changes also involve reporting rental income via this standard.
The switchover,
Until then, UAD 2.6 appraisals are acceptable. The guide notes the update does not apply to valuations which use the prior appraisal forms.
The portion of SEL-2026-08 which deals with the UAD changes gives the following as the highest and best use for the new appraisal format:
- Requires the property's highest and best use, as improved or as proposed, to be a residential one, rather than requiring it to be the present use;
- Defines present, residential and subordinate use cases in the context of highest and best use;
- Requires the property to be primarily a residential one-to four-unit home, with any non-residential use subordinate to the residential use, replacing its previous "residential in nature" guidance; and
- Establishes the eligibility criteria and reporting requirements for one-to four-unit residential properties when the present use does not satisfy one or more of the highest and best use tests.
Other
The clarifications when it comes to both highest and best use determinations as well as rental income policies are related to UAD 3.6, in that these are topics reported on in the new Uniform Residential Appraisal Report,
Specifically for the rental income changes, "if the lender has the need to use legacy form 1007 Rent Schedule, it cannot be delivered to the UCDP as either a standalone PDF or as a separate PDF inside of the UAD 3.6 Zip package," Green explained
The Zip package must contain only one PDF, which is the URAR and one XML dataset, which is the UAD 3.6 file, along with the folder of images used in the report. "But it should be retained in the loan file," Green said. "The UAD FAQ item 12 of the most recent publication on Aug. 18 puts emphasis on using the rental information section available in the new UAD 3.6 and URAR."
Freddie Mac's most recent guide change, issued on Sept. 2, did not contain any revisions related to UAD 3.6. Its online seller guide says "For the Mortgage to be eligible for sale to Freddie Mac, the highest and best use of the subject property as improved (or as proposed per plans and specifications) must be the present use."
In Fannie Mae's UAD 3.6 Policy Guide, it notes "for a loan to be eligible for sale to Fannie Mae, the property's highest and best use (HBU) as improved (or as proposed) must be residential. To qualify as a residential use, the property must be primarily built as a residential dwelling, and the market must recognize the residential use as the HBU of the property."
When it comes to subordinate use, which means it is for a non-residential mortgage still eligible for sale to Fannie Mae, the "use must be secondary to the property's residential use and the property's HBU as improved (or as proposed) must remain residential."
National Mortgage News reached out to Fannie Mae for additional comment regarding the change.
