Conventional Lending Guidelines are Easing

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Filed under: Market Comentary

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This weekend, Fannie Mae is releasing a new version of their automated underwriting software. This software really drives the vast majority of the lending that is done in the United States. So, it is a big deal that they are releasing changes that could impact your future mortgage.

Any time a new version is released, we are always provided with release notes that tell us some of the details of the updates. This information gives us the heads up about what we can expect in the new version.

This new version of the software appears to have a number of changes that will make the lending guidelines a little easier. It is has been a while since we’ve seen these types of changes. We anticipate that these software changes will approve more loans for us.

Highlights of the Fannie Mae Changes

These are a few highlights that I identified in the notes that were released regarding the new software updates:

• Maximum Debt to Income Ratios: This change will loosen up a little bit and allow higher debt-to-income ratios for buyers. So, you will have more flexibility with your debt load when you are preparing to buy a home. It will also help buyers to get approvals on homes with higher values, which is very helpful since home prices have been going up.
• Disputed Items on the Credit Report: In the past, there have been strict limitations regarding certain things on a credit report. These changes will relax the rules for those items.
• Loan to Value Ratios: The changes will also have an impact on loan to value ratios on adjustable rate mortgages. We don’t do much with adjustable rate mortgages, so I don’t see this change as a huge thing for our clients.
• Self-Employee Tax Returns: It looks like some people who are self-employed will only need to provide one year of tax returns for the loan application. Historically, self-employed clients need to provide two years of tax returns, no questions asked. So, this change will be a big help for someone who had a bad year on the taxes last year, and then profits turned up in the recent year. Now, we don’t have to average the two together.

Overall, it looks like the conventional guidelines are loosening up a little bit. If you want to read more about these changes, then you are welcome to click here to see the notes that were released. Or, call us at Franklin Loan Center if you have questions or need help getting a loan.

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