We’re living in expensive times-when a bottle of fresh juice can run you $5, rents and home prices are soaring. But aspiring homeowners might soon get a break as it becomes a little easier for those with student, credit card, and car loan debt to qualify for a mortgage.
- Fannie Mae plans to increase its allowable debt-to-income ratio from 45% to 50% on July 29. This means that more borrowers on the cusp of getting a loan, could qualify for a mortgage backed by Fannie.
- The debt-to-income ratio is calculated by taking a potential borrower’s monthly gross income and dividing it by the borrower’s recurring debs. Lenders use this ratio to figure out if a borrower can afford to make their mortgage payments each month.
- Fannie was already granting ratios of up to 50% with certain conditions. This new change opens the door to borrowers with more debt who can’t meet those conditions.
The best thing a consumer can do is ask the lender if they underwrite to Fannie Mae guidelines; and if they don’t you might want to find another lender. Or maybe push back on that lender to see if it’ll raise the limits.
A higher debt ratio isn’t a silver bullet for loan seekers, though. “Mortgage borrowers need to keep in mind, it’s the person’s whole application that will determine whether or not they get approved, says Eric Tyson, co-author of “Mortgages for Dummies.”
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