Debt To Income Ratio Limits Raised to 50%

On July 29th, 2017 the door to a new mortgage will be opened for thousands of potential homeowners and current homeowners that have a Debt-To-Income (DTI) ratio above 45%.  The mortgage giant Fannie Mae will be making an adjustment to its Automated Underwriting System (AUS) so that those with a 45%-50% DTI will be approved for a Fannie Mae mortgage solutionsnew mortgage. By some estimates this will open the door to nearly 100,000 new loans for lenders to process which is good news since the industry has had a slow start to 2017.

Additional good news is that it applies to loan applications with Loan To Value ratios above 80% which will really help those trying to purchase a home that only have a small down payment (such as 5% – 10%).  Mortgage rates are not directly addressed in this DTI change and it appears someone with a 45% DTI potentially have the same rate as someone with a 50% DTI.

The good news is not absent of concerns as a higher DTI means the loan applicant is devoting a high percentage of their income towards their home.  According to Fannie Mae they believe the risk of default does not increase that much between a DTI of 45% and one with a DTI of 50%.  Obviously the increase will be closely monitored and if proves to be too risky then it wouldn’t be surprising to see Fannie Mae revers course in 2018-2019.

However if the default risk remains low it might open the door for Fannie Mae to try additional actions and expand opportunities for lenders even further.