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New Easier Mortgage Credit standard goes into effect July 29, 2017

Fannie Mae, the United States largest source of money for mortgages is easing its debt to income (DTI) ratio requirements allowing more home purchaser to qualify for a mortgage. Fannie Mae will be raising its DTI ceiling from the current 45 percent to 50 percent as of July 29. DTI is a borrower’s total amount of debt, including credit cards, student loans, auto loans and mortgages, versus their total income. As Fannie Mae eases access to credit which will allow more home buyers qualify for a mortgage, Urban Institute estimates that this change will allow around 95,000 new mortgages to be approved annually. This was stated in a report written by Edward Golding, Laurie Goodman and Jun Zhu.

According to the Los Angeles Times,

Fannie’s and Freddie’s average DTIs look strict, but there’s actually more wiggle room for mortgage applicants this summer than any time in recent years. The average DTI for Fannie and Freddie during June was 39%. FHA, which tends to be more forgiving on debt matters, had average DTIs in June of 43%.

But Fannie, Freddie and FHA recognize that even solid, creditworthy applicants can be carrying high debt loads in the current economy, and they are open to higher DTIs than the monthly statistics suggest.

In an important policy change taking effect this month, Fannie raised its permissible maximum DTI to 50%.

Freddie Mac has had flexibility on DTIs built into its underwriting system for years and also can go to 50%, ideally for borrowers with compensating factors such as a higher down payment or high bank reserves. FHA is by far the most liberal of the three on DTI, funding loans with total debt loads in excess of 55%.



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