Home Loan Rules Eased

Many home-buyers will soon be able to borrow more AND more self employed home loan applicants will be able to use 1 year’s

Conventional Home Loan Rules Ease

worth of tax returns to qualify (instead of 2 years).  Fannie Mae is tweaking its self-employment and debt to income ratio requirements on Conventional Home Loans at the end of July (July 29th, 2017).

Debt to Income Ratio Max to Loosen

Currently, Fannie Mae (and Freddie Mac) both allow certain home loan applicants to go up to a total (or “back end”) debt to income ratio of 50%.  To do so today, a borrower must possess strong qualifying characteristics (great credit, low loan to value, strong reserves and/or healthy residual income).  Per Fannie Mae Release Notes dated May 30, 2017 regarding changes rolling out in DU 10.0, Fannie Mae will “no longer require certain additional compensating factors” in the 45% to 50% debt to income range for home loan approval

Simply put, the July change “is expected to increase the percentage of [approved loan applications]…with debt to income ratios between 45% and 50%.”  In other words, Fannie Mae is expecting more home-buyers will get approved at the 45% to 50% debt to income ratio range than are currently being approved based on their July 29th changes.

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Self-Employed – 1 Year Tax Returns

Self employed home buyers are also set to benefit on July 29th. Currently, Fannie Mae Conventional home loans may allow some self employed borrowers to use 1 year’s tax returns (rather than the standard 2 years) to qualify.  However, the system that dictates whether a mortgage lender must obtain and use 1 or 2 years tax returns for self employed home-buyers rarely allows 1 year.   Per Fannie Mae, as of July 29th, 2017 for self-employed home-buyers “the number of [loan approvals] eligible for 1 year of personal and business tax return documentation requirements will increase” for self employed borrowers based on Fannie Mae’s changes.

Other Conventional Home Loan Updates

Fannie Mae Conventional loan guidelines also loosen in the following areas on July 29th, 2017:

  1. ARM (Adjustable Rate Mortgage) maximum loan to value limits go from 90% to 95% on a primary residence purchase and rate/term refinance
  2. Disputed Account requirements will ease compared to current requirements
  3. Site Condo’s will no longer require a condo review

By Jeremy House

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Jeremy is the Founder of The HOUSE Team and a Sr. Loan Officer/Branch Manager with PrimeLending. Over the past several years he has ranked in the top 1% of all loan officers nationwide and one of the top 200 loan officers in America. In the mortgage industry, the devil is in the details. Jeremy prides himself on being a student and an expert when it comes to everything mortgage related.

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