father taking a picture of family outside of house

The qualifications for getting a mortgage are often changing. Sometimes the changes are good, and other times the news could be better. We’ve made some guideline revisions on Fannie Mae loans that should be welcome news for clients.

The change results in higher maximum debt-to-income (DTI) qualifying ratios. If debt has prevented you from qualifying in the past, or you could only buy a smaller house than you needed, it may be time to take a look at applying again.

We’ll go over exactly what’s changing, but before we get into that, let’s take a look at exactly what DTI is and how you calculate it.

A Quick Primer on DTI Ratios

When you apply for a mortgage, your lender will calculate your debt-to-income or DTI ratio in order to determine how much you can afford to spend on a house.

In a nutshell, your DTI measures what percentage of your monthly income goes toward paying on debt. This includes both revolving debt, like credit cards, and installment debts, which includes things like your car payments, student loans and house payment.

Let’s say you make $48,000 per year or $4,000 per month. Your monthly credit card balances are $500. You pay $800 in rent and a $300 monthly car payment. Finally, you have a $200 monthly student loan payment. Your total DTI is 45% ($1,800/$4,000).

The Impact of New DTI Policies

Now that you know what DTI is, what are the changes and how will they impact you? In the following section, we’ll discuss the changes.

Fannie Mae

Fannie Mae offers conventional loans requiring a minimum FICO® Score of 620. The mortgage investor recently changed its policies to allow for higher DTI ratios. There are many factors that go into mortgage qualification, but Fannie Mae now accepts DTI ratios as high as 50%. Previously, the standard maximum was 45%, and you could only go higher with strong compensating factors.

If you were on the edge of qualifying before, you may qualify now. If you did previously qualify, you may now be able to get a house in a slightly higher price range, potentially opening up more options.

It’s important to realize that DTI is just one piece of your approval process. Lenders, including Quicken Loans, will also look at all your income, assets and credit information. However, DTI is an important part of the puzzle.

If you’re looking to get a mortgage soon, we can help you with a preapproval to purchase or complete refinance approval online through Rocket Mortgage® by Quicken Loans®. If you’re more comfortable starting over the phone, one of our Home Loan Experts would be happy to take your call at (888) 980-6716.

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This Post Has 4 Comments

  1. My husband is on disability and I am his caregiver. This is our only income. We have $0 debt and a very high credit score. We do have savings and a 401k. Can we qualify for a home loan with only disability income?

    1. Hi KD:

      I’m going to recommend you talk to one of our Home Loan Experts. Every situation is different regarding whether you qualify and how much you qualify for. You can get in touch with us at (888) 980-6716. Hope this helps!

      Thanks,
      Kevin Graham

  2. I have being renting for 17 years in Tampa Florida my rent is 800.00 .I am tired of paying to someone else.Im interested in a a Fannie Mae program because i am on social security benefits.My credit score is poor got some medical billes to pay.Its there any hope for me.I have an excellent record of paying my rent in time always.

    1. Hi Marisol:

      I don’t know what your credit score is like, but I can lay out a few different parameters for you and then we can talk about ways to work with you.

      You need at least a 620 credit score from FICO to qualify for a conventional loan option through Fannie Mae. Depending on your situation, we can help you with an FHA loan with a credit score of as low as 580. If you need to get your credit score up, I’m going to suggest a few different things that might be helpful.

      We have this blog post that has a lot of great general tips on how to raise your score. I’m also going to recommend you check out our friends at QLCredit. You can pull your credit report and see both your report and score for free without affecting your score. This service will also give you some personalized tips on how to raise your score based on the information on the report. Finally, you could have a conversation with one of our Home Loan Experts who might be able to suggest a path to get your credit and finances on track. You can get in touch with them at (888) 980-6716. Hope this helps!

      Thanks,
      Kevin Graham

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