Fannie Mae made it easier to qualify for a mortgage by raising the debt-to-income ratio. Many people who may not have qualified for a home mortgage earlier this year may now qualify.
Learn about these changes, and what this could mean for you when applying for a mortgage.
00:00: Hello, I’m Mary Catchur. I’m the owner of Marimark Mortgage. There’s some exciting changes going on in our industry right now that you may not have heard about yet. They have to do with the Fannie Mae desktop underwriting system, which is referred to as Fannie Mae DU. There have been some changes that are actually going to make it a little bit easier for some borrowers to qualify, and even help streamline the loan process a little bit as well. So what is this Fannie Mae desktop underwriting system? This is a software program, basically, that the lenders will use to do an initial determination of whether a loan meets the general criteria of the loan file.
00:41: So what happens is, when we take an initial application, we will take that application and upload it into the software system along with your credit report. And then we run the software against it, so that it’s looking for things like does this person qualify for the program they’re applying for. It’s going to look at debt-to-income ratio, and it’s gonna analyze the credit report and look for things on there that may throw you out of being able to qualify for a program. This is a really important first step because we need to get an approval from this system before we can actually proceed with the loan. If you don’t get approval, there are some lenders that will do what they call a manual underwrite and not require that upfront system approval, but those are really limited in the lenders that will do that, and it’s much harder than to get qualified if you don’t get that initial approval.
01:31: So these changes that are happening are really important. Because one of the primary ones that we’ve already seen help a lot of borrowers with is that the debt-to-income ratio has been increased from 45% to 50%. What that means is, they’ll look at your file and they’ll analyze your debts and divide that by your income. And they want that, in the past, it’s always needed to stay at 45% or below. With that added flexibility now, of being able to go up to 50%, we’ve been able to qualify a lot more buyers that otherwise might have had to either be denied or switch into an FHA program that allows a little higher ratio. So that’s one great change.
02:10: The second one has to do with self-employed borrowers. Under Fannie Mae, they usually require two years of tax returns. Sometimes this is difficult for a self-employed person, particularly if their business is only a few years old and they’re showing increase in income. If you have to provide two years, you need to average that income. But if you’re able to just show your most recent year where you did a little bit better, you maybe have a better chance of qualifying. In the past, we’ve had to use two years. Going forward, there will be instances where the system looks at all of the factors involved in the loan, and if it feels that it meets the criteria it’s looking for, it may only ask for one tax return which, again, could help a self-employed borrower to qualify.
02:57: The third one has to do with the credit report itself. When we run your credit, we’ll often see that there are accounts that you may have disputed. Maybe you feel that the balance is incorrect, or that they’re showing a late payment or something that is not right so you’ll dispute that account. When you dispute an account, it removes it from the calculation of the credit score. In those cases, in the past, the lender has always required that we remove any disputes on those accounts, so that it calculates into the actual credit score. Though one of the changes that they’re talking about is some of those disputed accounts, when the program goes through this analysis, it may not ask for those to be removed. That can, again, streamline the loan process and make it much easier. Now, if there are things like late payments on them, you still have that issue to deal with. But if it’s simply an account that you disputed maybe a year ago but now you have been paying it routinely on time, rather than having to remove that dispute, we just include that payment in your debt-to-income ratio and we move on. So that’s another great advantage.
04:04: So lots of good things for borrowers going on. If you’d like further information on any of these, feel free to give us a call at 813-910-8020, or check us out at our website marimarkmortgage.com. Thank you.