Fannie Mae Changes Guidelines

Did your mortgage application get denied? Before you count yourself out for mortgage eligibility, read up on the latest changes GSE Fannie Mae made to its mortgage eligibility requirements.

Implemented in late July 2017, Fannie Mae’s new guidelines widen the net of eligibility, so more applicants can receive financing. Not only have debt-to-income (DTI) ratio limits increased, but down payment requirements for adjustable-rate mortgages (ARMs) have decreased.

These changes, along with modifications in Fannie Mae’s application process, will streamline the process, making it more user-friendly.

Higher DTI requirements

Fannie Mae’s new guidelines increase debt-to-income ratio limits to 50%. This means you can now qualify for a mortgage even if you have more debt than the ideal mortgage applicant. Debt-to-income ratio is calculated by dividing one’s minimum monthly debt by gross monthly income.

Minimum monthly debt is made up of any recurring debts that you hold, such as payments for car loans, student loans, or a mortgage. Minimum refers to the minimum allowable payment that you can make towards any of these debts. Gross monthly income is simply what you earn per month before taxes.

Debt-to-income ratio plays an important role in determining your mortgage eligibility. Having higher limits can open doors for those who may have a little more debt to qualify for a mortgage.

Lower Down Payments for ARMs

The other major change Fannie Mae made to its guidelines was an increase in down payment leniency for adjustable-rate mortgages. Instead of requiring a down payment of at least 10%, Fannie Mae will allow down payments of as low as 5% — a dramatic and effective decrease. Having a lower down payment could make an ARMs less risky, as you can have extra money saved in case your rate and interest payment go up.

An ARMs may not necessarily be for you, however, as all ARMs have 30-year terms. Depending on your loan terms, five, seven or ten years of the thirty have a fixed interest rate. If you are planning on living in this home long-term, and your loan terms are favorable, then an ARM may be the right choice for you, and a lower down payment can certainly go a long way.

These changes were released in Fannie Mae’s Desktop Underwriter (DU) Version 10.1 report, which you can read here. In addition to raising DTI limits and easing ARMs down payment requirements, DU version 10.1 updates other aspects of Fannie Mae’s mortgage application process, such as documentation and verification procedures.