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Tough Loan Requirements
September 5th, 2012 10:16 AM

In the never-ending venture to improve lending requirements for loans that will never be defaulted on, Fannie Mae and Freddie Mac will soon make some changes that will result in more difficulty to borrowers who want or need to finance.   Most changes will begin in October.

Borrowers who are seeking adjustable rate mortgages, due to the risk involved, will have to put more money down.  The maximum loan-to-value ratio in most cases is going to go to 90 %, from the current 95-97 % range.   Currently, that is a non event, as fixed interest rates are as low as 3% and all borrowers are trying to qualify for those mortgages.

Debt-to-income guidelines will also be tightened.  DTI is the amount of your monthly minimum payments on your loans, credit cards, mortage and taxes, and insurance.  If your DTI is too high you cannot get a loan regardless of the amount of equity or assets you have.  However, the cutoff varies in accordance to your credit score, equity and assets.    Currently, max DTIs range from 36 and 50 %, meaning that if you make $5,000 a month, between 36 and 50% of that amount can go towards your houseing costs and minimum payments on other obligations.  The lender does not count utilities, home maintenance or health insurance, or other everyday expenses.

What is proposed is to limit the DTI to 36% for the most part and 45% for stronger borrowers.  This is going to shut out a lot of people who would otherwise qualify.  Another new rule is that self-empoyed borrowers will now usually have to have two years of taxes and income reviewed instead of one.  This may make it harder for some newer small businesses to qualify.

If you have been procrastinating either buying or refinancing a home, now may be the time to get things started, before any of these proposed changes take effect.  An application needs to be started before October 1st, and it could make all the difference!




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Posted by Barbara Doeringer on September 5th, 2012 10:16 AMPost a Comment

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