6 Major Fannie Mae Guideline Updates in 2017
Home Loans Easier?
In an aggressive move to make qualifying for a Conventional home loan easier, Fannie Mae recently announced updates to it’s Desktop Underwriting (DU) automated underwriting system that will do just that.
Over the weekend of July 29th, 2017, Fannie Mae will update DU.
These changes are all focused on loosening up guidelines, as opposed to the more restrictive changes we’ve become accustomed to over the past 10 years.
For many years after the great real estate and mortgage crash of 2007 we experienced one restrictive tightening of underwriting guidelines after another.
More recently, it seems like the winds of change have shifted, and are now blessing home owners and home buyers alike with more realistic home loan financing options that are more reflective of the recovery trends in today’s economy.
In addition to the recent reversal on Student Loan guidelines, the update of DU to version 10.1 includes 5 additional changes that will surely encourage more people to consider looking into a Conventional home loan.
Major Fannie Mae Qualifying Changes
This is an unprecedented update that includes many consumer centric improvements to the way that Fannie Mae approves conventional home loan applications.
Let’s take a look at the top changes that will immediately increase the number of applicants that will receive a loan approval from Fannie Mae.
1. Maximum Debt to Income Ratios Increased
Debt to Income Ratios increased from 45% to 50%. I wrote about this last week. After the crash of 2007, Fannie Mae reduced the maximum qualifying guidelines to 45%.
Along with the more restrictive 45% guideline, an exception could be granted up to 50% loan to value with compensating factors. In my experience, these compensating factors usually included having significant savings, a minimum of 20% down payment (or equity for homeowners), and a higher credit score.
With the DU 10.1 update, Fannie Mae will remove the compensating factors requirement and allow home loan applicants to qualify with debt to income ratios up to 50%.
This is a major move that will allow many more people to afford to buy or refinance in 2017.
2. Disputed Tradelines
Another victim of the excessive tightening on the credit assessment of home loan applicants during the “lean years” of underwriting restriction was the way that DU looks at disputed items on your credit report.
The previous guideline required that all disputed items must be removed from the credit report prior to receiving final approval.
With the 10.1 update, DU may now issue an Approve/Eligible decision with disputed tradelines on the credit report. If you receive an approval with disputed tradelines, no further documentation will be required, and the disputed item will not be required to be removed.
3. ARM LTV Ratios
Adjustable Rate Mortgages (ARM) are an incredible tool for borrowers that know that they will be selling or refinancing within a specific period of time.
An ARM mortgage is typically fixed for a period of 5,7 or 10 years and then turns into an adjustable mortgage after that. The interest rates on an adjustable mortgage is almost always much lower than a fixed rate mortgage.
The biggest challenge with using an ARM mortgage in the past was that they were very restrictive in terms of loan to value.
Wit the 10.1 update, ARM loan to value ratios have been updated to mimic those of fixed rate mortgages. This means you can now use a 5/1 ARM up to 95% loan to value when buying a home using a Fannie Mae conventional home loan.
4. Self Employment Income Documentation
The plight of the self employed is an arduous one if you’re trying to get approved for a home loan.
Stated income loans that were originally intended to help self employed home loan borrowers were used and abused and a primary target when it all came crashing down.
The result has been that self employed borrowers are left will few options, and the options that are available are expensive.
With the 10.1 update, Fannie Mae has taken steps to help the self employed by relaxing income documentation requirements across the board.
The biggest change being that DU is more likely to only require the most recent one year’s tax returns to document your income. This is a major change from the previous “averaging the last 2 years” requirement that has been in place for years now.
As a self employed person, if you’ve had a good year, you have a much better chance of qualifying for a home loan with a Fannie Mae conventional loan in 2017.
5. Property Inspection Waivers
This has been a long time coming. Before the crash, if the value of your home as stated on your loan application was “realistic”, it was possible that Fannie Mae would not require you to pay for an appraisal when financing your home.
As home values plummeted during the desperate years of the mortgage and real estate crash, this option was nowhere to be found.
Well, it’s back. I’ve actually had recent success with receiving a property inspection waiver from DU and can attest to the expanded availability of this benefit.
With the 10.1 DU update, we should see even more property inspection waivers when a borrower has good credit, and equity in the home.
It is unlikely that you will receive a property inspection waiver with less than 25% equity in your home, and the opportunity to not have to pay for an appraisal is now more likely in this scenario.
6. Treatment of Timeshares
Certain timeshare installment loans are reported in the credit report data as mortgage-related.
In DU Version 10.0, these agreements would be considered a mortgage and the appropriate mortgage delinquency requirements are applied. DU Version 10.1 will treat all timeshare loans as installment loans.
What does this mean to you? If you had a foreclosure on a timeshare, there are no longer any waiting periods before you’re eligible to buy using a Fannie Mae conventional loan!
This is a pretty big update that while it does not affect the majority of borrowers, it resolves a relatively unclear guideline that caused much confusion around defaulted timeshare loans.
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