Fannie Mae is the largest insurer of mortgage loans in the United States. They have recently announced an increase in their debt-to-income (DTI) ceiling from 45 percent to 50 percent. The DTI is all a borrower’s monthly debt payments (credit cards, student loans, other mortgages, etc.) divided by their gross monthly income.
For most applicants, the DTI requirement is the reason they get denied a home loan. Higher DTI’s have a tremendous effect on the outcome due to the likelihood of a higher potential of a borrower not making their mortgage payment.
Fannie Mae has concluded that borrowers with higher DTI’s tend to have other factors making up for it, such as a high amount of reserves or significant down payments. This has made the decision to loosen credit acceptable.
FHA loans have always had a bit more leniency than Conventional loans, but they do come with the added burden of private mortgage insurance. Now applicants with higher DTI’s don’t only have to turn to FHA for their home loans and gives them more confidence when choosing a loan.
Although a very large portion of applicants can now be approved for a loan, they will still need to be vetted in all other areas of the application process. In general this is a path more “common sense” loan underwriting and ultimately it will create a better experience for the consumer.
Call our team at Bluefire Mortgage to discuss getting pre-approved today for a new mortgage at (760) 930-0569.
