April 2017 Conventional Loan Updates


Updates to Fannie Mae Guidelines

Fannie Mae is a government sponsored enterprise that purchases and guarantees mortgages on the secondary mortgage market. Fannie Mae doesn’t work directly with consumers. Instead, they set guidelines and standards for conventional loans that are offered to consumers via mortgage brokers and other lenders.

On April 25, 2017, Fannie Mae announced several changes to their guidelines. These changes have a positive impact on homebuyers who are looking to purchase a home using a conventional loan.

During the mortgage qualification process, the lender will review the applicant’s debts and liabilities as a percentage of their income. This percentage is called the debt-to-income ratio and factors into whether or not an applicant is approved for a mortgage along with how much they are able to be approved for.

Update #1: Student Loan Guidelines

Student Loan payments can have a huge impact on the debt-to-income ratio and can disqualify many applicants who would otherwise be able to qualify for a mortgage. Before this change was announced, lenders were required to apply 1% of the student loan balance as the payment amount which was counted towards the debt-to-income ratio – even if the applicant’s actual payment was less.

With the change that was announced on April 25th, we now have several options when calculating the payment. We can use the payment amount that is identified on the credit report, we can use 1% of the balance as the monthly payment, or we can use a calculated payment that will fully pay off the loan based on the documented loan repayment terms.

Update #2: Debts Paid by Others

Non-mortgage debts, such as installment loans, auto loans, student loans, credit cards, and other monthly debts may be able to be excluded from an applicant’s debt-to-income ratio if the applicant can prove that the debt has been satisfactorily paid by another party for the past 12 months.

Applicants who were previously unable to qualify due to high debt-to-income ratios may now be able to qualify if either of these scenarios apply. Applicants who have been approved but fall under either of these scenarios may find that they are now able to qualify for a higher loan amount.

Questions? Call us at 937-548-8222.

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