Mortgage Requirements Ease in 2017

Obtaining a mortgage can be a difficult process for some however mortgage requirements have recently been eased by Fannie Mae.  Everyone knows that after 2008 the lending industry pulled backed and made it more difficult than pre-2008 to get a new mortgage. And I think it’s safe to say that everyone agreed it was the necessary path equal housing lenderconsidering that you were able to borrow a million dollars, put nothing down and show no income during the height of the real estate boom.  

However around 2015 you started hearing that maybe Fannie Mae, Freddie Mac and the banks have gone too far; made it too difficult for qualified borrowers to get a new mortgage.  There were some valid concerns however the restrictions never got as bad as 40 plus years ago.  It’s long been rumored that Fannie Mae and the lending industry were going to loosen guidelines to bring in more buyers and qualified applicants.  It’s no surprise that with dwindling mortgage loan volume we’re now seeing Fannie Mae introduce more lenient guidelines.

Recently Fannie Mae introduced an update to their underwriting guidelines that eases the Debt To Income requirements currently in place.  It’s important to know these types of guideline changes have no affect on mortgage rates.  So getting a low home loan rate does not depend on these changes; and only depends on current market factors, your home (or home your about to purchase) and your credit score.  

Back to the mortgage requirement changes; the implementation of these new underwriting guidelines will take place July 29th however the information released about the changes just came out so lenders can prepare for the updates.  The main change is the Debt To Income ratio.  Fannie Mae is now allowing a 50% DTI where as it used to be 45% unless there were some super strong compensating factors.  A compensating factor would be 12-24 months of liquid assets along with a very low Loan To Value ratio and a top credit score.  

If you had all three in place then you might get lucky with a DTI Fannie Mae mortgage solutionsabove 45% under current guidelines.  On July 29th that changes, and you don’t need a compensating factor (s) to go up to a 50% DTI.  The good news is the best California mortgage rates are available even if you are at a 46%-50% DTI!  So there is no penalty if you are a borrower that might have a higher than normal Debt To Income ratio.

Directly from the Fannie Mae update here are some of the details of the changes that will take place in July (DU stands for Desktop Underwriter and this is the software that is used to underwrite loans under Fannie Mae guidelines):

PER FANNIE MAE:

  • DTI simplification: The maximum allowable debt-to-income ratio (DTI) will be adjusted in DU Version 10.1. Under the adjustment, DU will consider applications with a maximum DTI up to 50%. For DTIs above 45% and up to 50%, DU will no longer require certain additional compensating factors. If the DTI on a loan casefile exceeds the maximum allowable DTI of 50%, the loan casefile will receive an Ineligible recommendation.
  • DU Refi Plus™ loan casefiles submitted to DU Version 10.1 will continue to be subject to the maximum allowable DTI applied to DU Refi Plus loan casefiles in DU Version 10.0.
  • ARM enhancements: With DU Version 10.1, the maximum allowable loan-to-value (LTV) ratios for adjustable-rate mortgages will be aligned with fixed-rate mortgage LTV ratios. This alignment will be for all transactions, occupancy and property types, up to a maximum of 95%.
  • Simpler self-employed borrower documentation requirements: DU Version 10.1 will simplify IRS tax return documentation requirements for many self-employed borrowers. The number of DU loan casefiles eligible for the one year (instead of two years) of personal and business tax return documentation requirements will increase.
  • Disputed tradelines: DU will assess the risk using any disputed tradelines, and lenders will not be required to investigate the disputed tradelines if the loan casefile receives an Approve recommendation when using the disputed tradelines.