Home Loan Rules Eased

Debt to income ratio limits are now higher than before.  In addition, many self employed borrowers are able to get away with just 1 years’ tax returns.

Conventional Home Loan Rules Ease

Why you ask?  Fannie Mae relaxed their self-employment and debt to income ratio requirements in July of 2017.

Debt to Income Ratio Max to Loosen

Prior to the July 2017 change Fannie Mae and Freddie Mac allowed certain home loan applicants to go up to a total debt to income ratio of 50%.  Borrower had to posses strong qualifying characteristics.   Great credit, low loan to value, strong reserves and/or healthy residual income were all keys to getting to 50%.  After the changes, Fannie Mae “no longer requires additional compensating factors” in the 45% to 50% debt to income range.

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.

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Self-Employed – 1 Year Tax Returns

Self employed home buyers also benefit from the July 29th, 2017 changes.  Prior to the changes, Fannie Mae allowed certain highly qualified self employed borrowers to use 1 year’s tax returns.  However, the system that dictates whether a mortgage lender must require 1 or 2 years tax returns for self employed home-buyers rarely allowed just 1 year.   After the July 29th, 2017 changes “the number of [self-employed applications] eligible for 1 year of personal and business tax return documentation requirements will increase” according to Fannie Mae.

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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