Have you been waiting to apply for a mortgage until you’ve paid down more of your outstanding debts? Well, here is some good news for you:
On July 29, 2017, Fannie Mae, the world’s largest source of mortgage funding, is lowering its debt-to-income (DTI) requirements. The DTI will be raised from 45 to 50 percent.
So, what is debt-to-income ratio?
Simply put, it is a ratio that is calculated by looking at your total gross monthly income and the total payments you make monthly on all your debt accounts. In order to calculate your DTI, you need to include the payments you make on student loans, auto loans, credit cards and the projected payment on your new mortgage.
Take your gross income and the total of your debt payments and divide debt by income. That number is your DTI percentage. For example:
$6,400.00 gross income and $3,000.00 in debt payment (including your new mortgage) give you a DTI of 47%. (3,000 / 6,400 = .468, which is 47%.)
After the changes in July, you would be able to qualify for a mortgage, whereas today you could not meet the current DTI requirements.
The heightened DTI ceiling
In this excerpt from an article in The Washington Post, the vice president of Single-Family Analytics is quoted:
“We feel very comfortable” with the increased DTI ceiling, Steve Holden, Fannie’s vice president of Single-Family Analytics, told me in an interview. “What we’re seeing is that a lot of borrowers have other factors” in their credit profiles that reduce the risks associated with slightly higher DTIs. They make significant down payments, for example, or they’ve got reserves of 12 months or more set aside to handle a financial emergency without missing a mortgage payment. As a result, analysts concluded that there’s some room to treat these applicants differently than before.
This may be just the news you were waiting for before applying for a mortgage. So let’s talk and see if this change will make the difference for you.
Tricia Houston, Owner
Lending Maven Mortgage
Colorado native and Stapleton resident
You have questions about getting a mortgage, and I have the answers.