The mortgage reform just keeps coming. The latest guideline changes coming from Fannie Mae are lower Debt-to-Income changes. Get ready America, getting a mortgage just keeps getting harder.
As the mortgage industry keeps over-correcting, now they want to make it harder than ever to get a home loan. Fannie Mae is changing their guidelines again so that borrowers will now have to qualify with a 45% back-end debt ratio.
What exactly does this mean? When lenders look at debt ratios, they are looking typically at “front end” and “Back end” debt ratios. Front end means your income to house payment expense only. Your housing expense includes principal, interest, taxes, insurance, mortgage insurance, and homeowner association dues. The preferred magic number for a front end ratio is around the 30% mark.
Back end means all of your front end expenses plus all of your additional debt such as car payments, student loans, credit cards, etc. (typically only those items that are reported on your credit report). As stated previously, that magic number is now 45%. There are exceptions to this rule, but don’t look for too many exceptions.
Previously, Fannie Mae would allow higher debt ratios based on credit scores. So if you had an extremely high credit score, then you could possibly go as high as 60% back end debt ratio.
The bottom line is that the days of easy credit is over. We must all tighten our belts. We can’t just go crazy buying the expensive cars and maxing out our credit cards. We may even have to go without the extras! Oh the horror! But if you are thinking about buying a home, then that is what you must do.
If you are thinking about buying a home in the near future, give me a call to go over your debt situation to see if you will qualify. There is no charge for a consultation. I can show you how to make your home ownership dreams come true!
