Fannie Mae, one of the mortgage industry’s major influencers, just released news that they are easing up on debt-to-income (DTI) requirements for eligible borrowers. This summer, the current DTI limit will be raised from 45 percent to 50 percent, beginning July 29. Although five percent doesn’t sound like a huge deal, it’s an exciting change for several reasons.
For one, debt is one of the most common inhibitors that prevents people from becoming homeowners due to strict DTI requirements. If your DTI is too high, you might be denied a mortgage. While this sounds like an unfair regulation, it actually protects everyone involved from financial jeopardy. Lenders want evidence that you can consistently pay back the money you borrow. The ratio of your existing debt to your income could demonstrate an inability to pay back your home loan. However, with Fannie Mae’s new DTI requirements, more borrowers who would have previously been turned down may now be eligible for a home loan.
This is also exciting news because of Fannie Mae’s research findings. The government-sponsored enterprise has used and analyzed data (over the course of roughly 15 years) to determine that a significant amount of borrowers with 45 to 50 percent DTI have good credit and are not prone to defaulting on their mortgage. This data gives us confidence that the housing economy is in good shape for Fannie Mae to be willing to make this change to DTI requirements.
In addition, borrowers whose current DTI limits them to an FHA loan will now have the opportunity to look into other home loan products in the marketplace.
It’s important to note that this change does not approve every borrower with a DTI higher than 45 percent—it simply means they have a chance. Fannie Mae’s AUS will still consider the borrower’s entire application before making a decision, including factors like down payment amount, credit score, income, loan-to-value (LTV) ratio, and more.
At Cardinal Financial, we are committed to being flexible. We embrace each borrower’s unique situation and work to fit the loan to the borrower, not the borrower to the loan. Ready to take the first step to becoming a homeowner? Get in touch and see how we can help make your homeownership dreams a reality.