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Fannie Mae Version 10.1 Update

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.

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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.

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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.

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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.

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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.

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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.

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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.

Getting Your Questions Answered

All lenders are not created equal.  Most of the readers that find this site because they’ve been researching solutions to challenges, and have been told 10 different things by 10 different loan officers.

We’ve created this resource to help you sift through the endless opinions and articles that may, or may not directly answer your question correctly.

There are several ways to ask questions, and get expert opinions on this website.

  • Submit a Question:  On the bottom of this page, you’ll see a prompt that allows you to ask questions.  These questions come directly to me and are answered very quickly.
  • Leave a Comment:  Below every article is the option to leave a comment or question.  We see these comments and questions in real-time and the always answered, usually pretty quickly.

In addition to researching your questions and providing you with expert advice, I can also introduce you to a lender friend that I know has experience with your specific situation and can help.

About Your Expert

Scott Schang

As a 19 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

Leave a Question or Comment About this Topic

  • Eric says:

    If I have a 120 mortgage late back in 10/14 can I get a conventional mortgage? I am being told I have to wait 4 years.

    • Hi Eric,

      There are other factors that need to be considered, but simply having the late payments, and even a notice of default, would not prevent you from qualifying for a conventional mortgage. Many, many years ago, a 120 day late would be treated the same as a foreclosure. It has not been that way for quite a while.

      If you would like an introduction to a lender that will not tell you that you have to wait 4 years, shoot me an email to scott@findmywayhome.com and I can connect you with an experienced loan officer that knows the guidelines.

      Hope this helps?

  • maritza says:

    do we need to obtain a letter from the individual authorizing 100% usage of assets if they are not on the laon

    • Hi Maritza,

      If you are using an asset account that is not only in your name, and these assets are required for your financing, then yes, you would need a letter stating that you have access to those funds.

      Does that answer your question?

  • Philomena says:

    I have a loan with Chase but modified my loan,at that time my loan was$I,313.00 I am up to $1,579.50 which each year it keeps going up I try talking to them but get no where can you help? Please

    • Hi Philomena,

      We can always look at your loan for an opportunity to refinance into a lower fixed rate. Many of these loan modifications started off at a pretty low interest rate, and then increased every year for 5 years. Many of those modifications were scheduled to end up in with a rate above 5%!

      If you would like to send me an email to scott@findmywayhome.com, and maybe a copy of your mortgage statement, let’s see if there’s something that can be done.

      If it looks like there is an opportunity for you to get your payments down, I might be able to introduce you to someone that can help.

      Hope this helps?

  • Michele says:

    Just read your posting about the Fannie Mae guideline changes. That all sounds good, but is it headed towards creating a new bubble, with another catastrophic bust? I for one will stay with a fixed interest loan.

    • Hi Michele,

      None of these guideline changes are high risk at all in my opinion. I think these are more of a “centering” of their risk analysis approach from years of being overly restrictive after the great recession of 2007.

      Long term fixed rate mortgages are better than ever right now for homeowners that do not anticipate having to move or refinance in the next 10 years. Rates are still incredibly low. It’s a very affordable time to be a homeowner if you have the means!

      Thank you for your comment 🙂

  • Ann says:

    I have a question regarding student loans and conventional mortgages. I have a relative that has been paying my student loans for me for the past 2+ years, if I show documentation through my bank account, can my student loan payment be excluded from my DTI credit ratio?

    • Hi Ann,

      Fannie Mae calls this a contingent liability, and has recently changed their guidelines to state that if you can show that someone else has been making payments for 12 months (proof is usually cancelled checks), that you can exclude that liability from your debt to income calculation.

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