Fannie Mae will roll out new lending guidelines on December 13 which will make securing a mortgage a lot easier for some borrowers but harder for others.
The Good News: Gift Money For Entire Down Payment
- Borrowers can now use gifts or grant funds for their entire down payment, avoiding the old rule requiring at least 5% of the down payment from the borrowers’ own funds. Gifts can come from family members and non-profit community grants.
- The new rule applies to all single family transactions and 1-4 unit multifamily mortgages with less than 80% loan to value.
- For multifamily properties with 80% or higher LTV, the borrower must use his own funds for 5% of the down payment.
This will help upgrade buyers and young couples who for whatever reason don’t have enough money and are getting some from their families.
Bad News: Tougher Debt-To-Income Ratios
Fannie Mae is getting tougher on debt-to-income ratios, or the amount of a borrower’s gross monthly income that goes toward paying off all debts. The maximum ratio for those seeking a conventional mortgage will drop to 45 % from 55 % under the new guidelines.
The agency is also taking a harder look at payment histories on revolving debt. In the past, if a borrower missed a monthly payment, Fannie Mae ignored it, or required that lenders add a few percentage points to the total balance when calculating the debt-to-income ratio. Now, buyers who have missed a payment will have 5 % of the total balance added to their ratios.
These new guidelines could sink many potential borrowers with student-loan debt that has been deferred or borrowers who have bought big-ticket items through financing with delayed payments.
Worst News: Foreclosure Penalty Up To 7 Years
Perhaps the toughest news from Fannie Mae concerns borrowers who have gone through foreclosure. They will be excluded from obtaining a Fannie-backed loan for seven years, up from four.
This is an especially tough pill to swallow, especially since many feel Fannie Mae is complicit in creating the very environment which lead to the explosion of foreclosures.
Buyers who do not meet the new Fannie Mae requirements may have to consider a nonconforming loan from the Federal Housing Administration (FHA). These loans, which do not follow Fannie Mae underwriting guidelines, require mortgage insurance premiums and, for those with low credit scores, higher interest rates and steeper down-payment requirements.