Will tighter Fannie Mae guidelines make a home purchase or mortgage refinance harder to get?

November 07th, 2011

With the release of Fannie Mae 8.0, the mortgage industry has seen tougher underwriting criteria for home refinance and purchase loans.

Updates to credit scoring and debt-to-income requirements

The two biggest changes affect credit (FICO) scores and debt-to-income (DTI) ratios. Borrowers who want to get approved for a mortgage need at least a 620 credit score, up from 580. In fact, many lenders have set their minimum score at 640, 660, or even 680.

Affecting more mortgage applicants for home refinances and purchases is the lowering of maximum debt-to-income or DTI ratios from 50% to 45% of the borrower's gross income. For borrowers earning $8,000 per month, at a mortgage rate of 5%, this reduction in allowable DTI lowers the allowable loan amount by $75,000.

Calculating DTI

Your maximum DTI is determined by multiplying your gross (before tax) income by .45. Then, add up your current monthly credit obligations (minimum required payments on car loans, student loans, credit cards, etc) including proposed monthly mortgage payment, plus mortgage insurance (if applicable), property taxes, homeowners insurance, and association dues (if applicable). If the total is less than your max DTI, you qualify. If it's more, you'll need to pay down your debt, increase your income, or buy a cheaper home.

If you earn $5,000 per month and have a $200 car payment and credit card payments totaling $150, and your proposed total house payment equals $2,150, your DTI ratio would be 50% and you would not qualify. Find a home with a $1,900 payment and you're in business, because $5,000 * .45 = $2,250, and $2,250 - $350 = $1,900.

Use a free mortgage calculator

How does this affect you with mortgage prequalification? Use a free online mortgage calculator--the free mortgage prequalification calculator on this site incorporates thresholds well within the new limits.

Thus, this calculator will give you a safe and conservative estimated purchase price based upon the information you enter. To be most accurate with your home refinance or purchase, consult mortgage professional.

 

Posted By :

Dennis is co-owner and broker of record for Stratis Financial in Southern California. With over twenty years experience in the mortgage industry he has helped thousands families purchase homes. His Weekly Rate and Market Update keeps his clients and real estate professionals educated and informed on the mortgage industry and the economy. Dennis has a degree in Economics and Political Studies from Pitzer College and is married with two children.

Mortgage rates remain above 5 percent as consumer prices rise

February 18th, 2011

There is a relationship between prices you pay in the store and the rate on your new home loan or refinance mortgage. This week two key indexes on prices were...  Read More

Rates at 10 month high, White House proposes changes for Fannie-Freddie

February 12th, 2011

While the world was focused on events in Egypt this week some major news was occurring at home for the mortgage industry. The industry took a look back and speculation...  Read More

Mortgage rates rise for third straight week

February 04th, 2011

In spite of rising tensions in Egypt and elsewhere, it appears foreign affairs had little impact on mortgage rates this week. New home loan and mortgage refinance applicants are continuing...  Read More

Your mortgage rate: Beyond the data

January 28th, 2011

As reported by Freddie Mac on Thursday mortgage rates increased for the second week in a row. As reported by the Mortgage Bankers Association refinance applications are at their lowest...  Read More

0 Responses to "Will tighter Fannie Mae guidelines make a home purchase or mortgage refinance harder to get?"

No Comments

Leave a Comment