Sep 13, 2017
Fannie Mae released a new version of their automated underwriting system in July. Among the "improvements":
- The number of self-employed borrowers who will be allowed to qualify with one year of tax returns (instead of two) will increase.
- It should get easier to document disputed accounts on a borrower's credit report.
- Borrowers who have an offer of employment but who have not yet started work at loan closing may now be eligible for Fannie Mae loans.
- Fannie will now consider debt to income ratios up to 50% (previously the max was usually 45%).
I have mixed feelings about the debt to income (DTI) ratio increase. In calculating DTI, we use pre-tax income for our income figures. And our debt figure includes the proposed mortgage payment (principal, interest, taxes, insurance, mortgage insurance, HOA dues) and the minimum payment due on credit cards, auto loans, student loans, lines of credit, etc.
Let's assume a person makes $25/hour, works full time, and has a 50% DTI. Want to guess how much disposable income that person has after factoring in federal taxes? $608.52/month. That's $608.52 for food, healthcare, gas, utilities, cell phone, internet, and retirement savings. That's not much, and I worry that we are setting people up for failure.
That's one reason we start every borrower conversation with, "How much are you comfortable paying for a monthly mortgage payment?" It's more important to me that a buyer is comfortable with his monthly payment than stretched to pay his bills every month!