Can the New Mortgage Guidelines Save You Money?
On July 29, 2017 Fannie Mae will be changing its guidelines on mortgage lending. Fannie Mae is a corporation that is sponsored by the United States government that makes it easier for mortgage lenders to do their business. The guidelines put out by Fannie Mae affect how much a down payment is needed, how much you can get, and the ways you pay it back.
Under new rules, the DTI, or debt to income, cannot exceed 50%. There are two different ways that debt to income is typically calculated. First, what percentage of your income will go towards housing? This is including mortgage, insurance, property taxes, and any association dues that you might have while you live there. That is sometimes referred to as your “front end” DTI. Additionally, there is “back end” DTI that can include things like car loans, student loans, credit card payments, and any other debt you have that requires monthly servicing; added together, the amount of payments has to be less than half your monthly income.
Some items like civil judgements and tax liens won’t appear on your credit report. This can make it much easier when applying for a mortgage. Late mortgage payments will be handled differently, as lenders must reach out early about lack of payment so that the homeowner can figure out a better repayment plan and avoid foreclosure. Also, if you are self-employed, you may be able to submit just one year of tax returns. This can make the hectic process of getting approved for a mortgage much easier on entrepreneurs, and could also greatly increase the amount they can take out. Previously, self-employed people had to have two years’ worth of income that was averaged to base pay off of. This could be a problem if an entrepreneur’s business did not take off until last year. For example, if someone earned $30,000 two years ago, but $150,000 last year, the amount they could barrow would be based off an income of $90,000.
Most importantly, all decisions about your finances should be made with the proper professionals.