Blue house with a tan door

As of June 25, 2018, we’ve made some changes to the way our mortgage approvals work. You can read more about our Power Buyer ProcessTM.

Fannie Mae has rolled out some new changes to its policies recently. Often, when a change is made, it either helps or hurts people who might be trying to qualify for a mortgage. The changes we’re going to write about today definitely help.

As part of the guideline modifications Fannie Mae has rolled out, clients can now qualify with a slightly higher debt-to-income (DTI) ratio. You’ll also be able to make a lower minimum down payment on an adjustable rate mortgage (ARM).

If you’ve applied in the past and were denied based on one of these factors, it may be time to apply again. Let’s go over what these changes mean on a practical level. We’ll touch on the DTI piece first.

Higher DTI Limits

Fannie Mae has updated its DTI guidelines to accept ratios as high as 50%. This could help expand the number of people who qualify to get a mortgage.

Your DTI ratio is a measure of how much of your monthly income goes toward debt payments. It takes into account both installment debt like house and car payments and the revolving debt associated with credit cards. Figuring out your DTI is pretty simple. Let’s go over a scenario to show you how this works.

Let’s say you make $48,000 per year right now ($4,000 per month). Your student loan payment is $600 every month. You pay $300 per month for your car. Your rent is $800. You make total payments of $250 each month on your credit cards. To get your DTI, you compare your monthly debt payments to your income ($1,950/$4,000). In this hypothetical, your DTI would be 48.75%, and you may qualify under the new guidelines.

Lower Down Payments on ARMs

For its second major change, Fannie Mae has adjusted the minimum down payment on ARMs to be more aligned with its fixed-rate offerings. As opposed to having to bring 10% of the loan amount to closing, it’s now possible to get an ARM with a down payment of as low as 5%.

Traditionally, we think of a fixed-rate mortgage as the way to go. For many people, this is definitely a very good option. However, it’s not the only game in town and doesn’t make sense for everyone.

According to the National Association of REALTORS®’ most recently available data, the average homeowner stays in their home for 10 years. It’s important to understand that when you get a 30-year fixed-rate mortgage, you’re paying a higher rate in exchange for ensuring the rate stays the same for 30 years. If you plan on putting down roots and making this the last house you buy, it makes a lot of sense to pay a little bit for peace of mind.

If you only plan on being in your home 5 or 10 years, it might be better to take a look at an ARM. Let’s talk a little bit about how they work before going further.

How ARMs Work

Mortgages with adjustable rates typically come in 5-, 7- or 10-year varieties. What you may not realize is that all ARMs have a 30-year term. The number of years referenced by a 5- or 10-year ARM actually refers to how long the rate stays fixed at the start of the term. If you don’t plan on being in the house for long, you might very well be ready to sell the property before the rate ever adjusts.

If you’re in the house at the end of the fixed period, your rate will adjust up or down based on where the market is at the time. Typically, they adjust every year until you sell, refinance or pay off the loan.

If your rate adjusts upward, it’s important to note it doesn’t rise indefinitely. There are caps on how much your rate adjusts initially and at each subsequent adjustment. Finally, there’s an upper limit on rate adjustments for the life of the loan.

In an environment of rising interest rates like the one we’ve just entered, ARMs tend to enjoy increased separation from the higher rates offered by fixed-rate loans. For that reason alone, an ARM could be worth taking a look at, particularly now that you can make a lower down payment.

If these changes by Fannie Mae have you thinking about your options to purchase a home or refinance, you can get a preapproval or complete refinance approval online through Rocket Mortgage® by Quicken Loans®. If you’d rather get started over the phone, one of our Home Loan Experts would be happy to take your call at (800) 785-4788. If you have any questions for us, we’d be happy to answer them in the comments.

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This Post Has 24 Comments

  1. I am so lost I live in Pa but want to move to Century Village West palm Beach Fl That is my first problem I know of a few units I do like and I am also opened to other century village propertys. my second problem is I do not have any money for closing cost I am able to come up with about 2k for down payment but I don’t know if I need that much and with fanny mae homes I have yet to find one that is not a disaster home (condo) west palm has one and I also spoke to a guy in the century village realty office about my cat and he laughed and told me to do as all the others do here which is to have my doctor write me a note on why I need my cat I need to move and want to move to century village and my last problem is that I was just approved for ssdi in june but I am not writing on here how much it is but I have looked at quite a few condos online at century village west palm and have saved quite a few and if I truly had to live in a 20something k with 600square foot I would if I had to but I have saved condos from 25-45k that I truly like and have central air. I have never owned a home in my life and this would be my forever home plus cable is included and I prefer to have a centrall air unit do to 2 air condioners running sounds like it would cost a lot more money in electric then central. I have been to this property a few years ago and truly like it and I turn 55 oct 6 and this would be a great birthday gift I have been doing my best to pay off all my debt but that will take a while but min debt is about 400 just a guess and I saw earlier on your page of 1 percent down I just don’t see any way for me to get the money for closing costs can you help me understand and with a condo can u negotiate like u can on a house that would be awesome for some of the ones that are 40k that I like and able to get them down to 30something Thank you for your help

    1. Hi Andrew:

      There are a lot of really good questions here. I’m going to do my best to answer what I can in the order you posed them. At the end, I’m also going to give you a number for one of our Home Loan Experts in more detail and really go over your options.

      As far as closing costs, a lot of times we can help you roll that into the loan so you wouldn’t have to come up with the money up front. When we refer to Fannie Mae in this article, we’re not saying you have to get a property they own and have taken over. You just have to get your loan through Fannie Mae. You can negotiate the price on a condo just like you can on a house. It’s all about what the seller is willing to do. If your debt is really only about $400, that’s not too high, depending on your monthly income. It doesn’t matter where you get your income as long as you get it on a regular basis. We can look at your options, but we do work with SSDI income.

      For the rest of these questions, I’m going to recommend you speak with one of our Home Loan Experts. One of them would be happy to take your call at (888) 980-6716. I hope this helps! Have a great day!

      Thanks,
      Kevin Graham

      1. I also forgot to say my credit score is 777-789 area and really would like a condo at century village and when I mentioned my debt of about 400 that would be with min payments I saw on some other site that to see what I qualify for they want my total min payments per month but my credit score is in excellent condition I just don’t know how I am going to or even if I can, or if it is possible to buy a condo in florida from Harrisburg pa so I can drive down and know I have a place to live.

        1. Hi again Andrew:

          You obviously don’t want to make just your minimum payment because that hurts your credit. If your score is that good, you already know that. If you’re looking for a house, you’re going to want to look at places like Zillow and Trulia in order to figure out the kind of house you’re looking for and then you can take virtual tours. One thing you’re going to want to be sure you have is a good real estate agent down there. If you speak with one of our Home Loan Experts by calling (888) 980-6716, we do have friends over at In-House Realty that can help you find a good real estate agent because you don’t want to be going down there 100 times today tours. I’m going to recommend you just get started by calling someone and we can help you.

          Thanks,
          Kevin

    1. Hi Brenda:

      There are no age restrictions on the loans we offer. If you’d like to check out your options online, you can get a preapproval to purchase or a complete refinance approval through Rocket Mortgage. Otherwise, one of our Home Loan Experts would be happy to take your call at (888) 980-6716. Hope this helps!

      Thanks,
      Kevin Graham

  2. Get my email address off your mailing list today 8/17/17. Please, I can’t take the time to read this and my email keeps

    1. Hi Leroy:

      I can’t find you in our lead system. I’m assuming you must want to unsubscribe from our Zing emails. We’re sorry to see you go, but we can get that taken care of for you. Thanks for reading! I’m going to email you as well just to make sure that’s the email you’re referencing.

      Thanks,
      Kevin Graham

    1. We think it’s a good plan, too, Debra! If you would like to get started, we can certainly help you get an online approval through Rocket Mortgage or one of our Home Loan Experts will be happy to take your call at (888) 980-6716.

      Thanks,
      Kevin Graham

  3. I am trying to obtain some down payment assistance to possibly purchase a home. I believe I may qualify under HUD also. I cannot get past entering my password online. it keeps sending me back. I will check my mail account and I hope you can help. thank you.
    Dorothy Butler

    1. Hi Dorothy:

      You can certainly look at down payment assistance options. Different states have different programs available. In terms of your account issue, I’m going to get this over to our client relations team so we can help you reset your password and get back in.

      Thanks,
      Kevin Graham

  4. I need an answer. I had a bankruptcy in 2013(dismissed). My house was included in it. But the deed did not change hands until 2016. How long do I have to wait to apply for a mortgage.
    Thank you

    1. Hi Scott:

      Your options depend on the type of bankruptcy and the date of dismissal (2013 or 2016). We do have one option that lets you apply for a loan one year after the dismissal date. You would have more options two years or four years after the bankruptcy. If you’re ready now, you can give one of our Home Loan Experts a call at (888) 980-6716.

      Thanks,
      Kevin Graham

    1. Hi Cleveland:

      In order to qualify for this particular conventional loan option, the lowest median credit score that you and any potential co-clients on the loan could have would be 620. That being said, we do have an FHA option that might work. Your credit score is also high enough that we might be able to come up with a game plan for you to shortly get where you need to be to qualify for a conventional loan, assuming there’s not too much variance in your scores. With that in mind, I’m going to recommend you talk to one of our Home Loan Experts and go from there. You can call (888) 980-6716 and we’d be happy to talk to you.

      Thanks,
      Kevin Graham

  5. I only asked a simple question from one of your agents about current finance rates. I told the agent Zi was applying for a loan, just curious. Then your company agent reported the question into an inquiry that shows on my credit report. I will never use or recommend your company to anyone since I was mislead by your company!!!

    1. Hi James:

      I’m sorry to hear you’ve had this experience. We never want any of our clients to feel like they were misled. I’m going to have our Client Relations team look into this and reach out. Thank you for making us aware of this.

      Kevin Graham

  6. Hi!! My husband my son and I are interested in buying a home. Our credit is poor. Can we still qualify for a loan all three of us together?

    1. Hi Nancy:

      Three of you can be on the loan. The problem you’re going to run into is that in order to qualify for a loan, the lowest median credit score of anyone on the loan has to be 580 or higher. If you want a conventional loan, it has to be 620 or better. That said, there are some things I’m going to recommend each of you do to help boost your credit score.

      To start, there are some good tips in this blog post on steps you can take. Secondly, I’m going to recommend each of you sign up for a QLCredit account. You can get personalized tips based on your credit report and score. These are checked for free without affecting your score. Finally, when you’re getting close to ready to buy, one of our home loan experts can work with you to come up with a plan to keep your credit where it needs to be. Hope this helps!

      Thanks,
      Kevin Graham

    1. No problem. I’m going to get this over to our client relations team so we can have someone reach out at the appropriate time.

      Thanks,
      Kevin

  7. I believe I qualify as a veteran. However, I need to reduce some credit card balances to help my credit score. No late payments, everything is current but my score is being hurt by high balances so I am going to try and get them to at least 50% of the credit limit. My score is at 618 currently

    1. Hi James:

      The VA sets no specific credit score minimums, so lenders set their own. At Quicken Loans, we require a 620 credit score for both VA and conventional loans. The good news is you’re very close and we could work with you on a plan to both raise your credit score and bring down your balances in order to help you qualify and accomplish your goal. I’m going to recommend you get started by talking to one of our Home Loan Experts. You can get in touch with them by calling (888) 980-6716. Hope this helps! Thank you for your service!

      Kevin Graham

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