The qualifications for getting a mortgage are often changing. Sometimes the changes are good, and other times the news could be better. Weâ€™ve made some guideline revisions on Fannie Mae loans that should be welcome news for clients.
The change results in higher maximum debt-to-income (DTI) qualifying ratios. If debt has prevented you from qualifying in the past, or you could only buy a smaller house than you needed, it may be time to take a look at applying again.
Weâ€™ll go over exactly whatâ€™s changing, but before we get into that, letâ€™s take a look at exactly what DTI is and how you calculate it.
A Quick Primer on DTI Ratios
When you apply for a mortgage, your lender will calculate your debt-to-income or DTI ratio in order to determine how much you can afford to spend on a house.
In a nutshell, your DTI measures what percentage of your monthly income goes toward paying on debt. This includes both revolving debt, like credit cards, and installment debts, which includes things like your car payments, student loans and house payment.
Letâ€™s say you make $48,000 per year or $4,000 per month. Your monthly credit card balances are $500. You pay $800 in rent and a $300 monthly car payment. Finally, you have a $200 monthly student loan payment. Your total DTI is 45% ($1,800/$4,000).
The Impact of New DTI Policies
Now that you know what DTI is, what are the changes and how will they impact you? In the following section, weâ€™ll discuss the changes.
Fannie Mae offers conventional loans requiring a minimum FICOÂ® Score of 620. The mortgage investor recently changed its policies to allow for higher DTI ratios. There are many factors that go into mortgage qualification, but Fannie Mae now accepts DTI ratios as high as 50%. Previously, the standard maximum was 45%, and you could only go higher with strong compensating factors.
If you were on the edge of qualifying before, you may qualify now. If you did previously qualify, you may now be able to get a house in a slightly higher price range, potentially opening up more options.
Itâ€™s important to realize that DTI is just one piece of your approval process. Lenders, including Quicken Loans, will also look at all your income, assets and credit information. However, DTI is an important part of the puzzle.
If youâ€™re looking to get a mortgage soon, we can help you with a preapproval to purchase or complete refinance approval online through Rocket MortgageÂ® by Quicken LoansÂ®. If youâ€™re more comfortable starting over the phone, one of our Home Loan Experts would be happy to take your call at (888) 980-6716.
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