New Home Ownership Easier as of July 29, 2017
Fabulous...in one week it is going to be a little easier for people with all kinds of existing debt — including student loans — to qualify for mortgages to either purchase a home, or refinance. This all is effective soon...very soon...in fact in one week on July 29, 2017.
Fannie Mae is raising the DTI (Debt to Income) maximum percentage from 45% to 50% as of July 29, 2017. In English...let's say a borrower earns $5,000 a month and has monthly minimum debt payments totaling $2,250. The DTI, (minimum monthly debt payments divided by income) is 45%...right at the current ceiling. When the DTI ceiling bumps to 50%, if they had $2500 of monthly minimum debt they will still qualify. $250 per month as a minimum monthly debt payment is a lot to your average person, thus opening the doors for so many people...including those people with student loans. Student loan debt is now the largest source of household debt besides mortgage debt in the US...Did you know that?
Some people think this just allows families to have more debt and that is bad...others think it is great...I personally think it is great considering the current place of our system, as this can help those of us living the real world and not just as a statistic...as it is almost always beneficial to own a home vs rent..and this also allows more people to qualify on refinancing to improve their existing financial situations. What do you think? Please comment below!
I have compiled below some definitions below at a high level, just in case you care to understand more about what this all is...and you should as it will help you strategize your finance and home ownership considerations...and you will be in the know so not to be sold a loan that may not be best for you...
Who or what is Fannie Mae?
The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Fannie Mae does not originate or provide mortgages to borrowers. The organization purchases and guarantees them via the secondary mortgage market. Fannie Mae has guidelines set so a loan can be qualified as ‘buyable’ by them on the secondary market. Lender's generally provide better rates on loans that qualify under Fannie Mae guidelines. One reason this organization exists to allow banks to free up money to offer more loans to the public.
What is the secondary mortgage market?
The secondary mortgage market is the market where loans and servicing rights (i.e. company that handles billing and customer service etc.) are sold between mortgage originators. A significantly large percentage of newly originated mortgages are sold on the secondary mortgage market. This is why you may get notices and updated statements with a new company while you have a mortgage, as the loan or servicing rights may have been sold.
What is DTI (Debt to Income Ratio)?
A debt-to-income ratio (DTI) is one way lenders (including mortgage lenders) measure an individual's ability to manage monthly payment and repay debts. DTI is calculated by dividing total recurring monthly debt payments by gross monthly income, and it is expressed as a percentage. Monthly recurring dept payments would usually include anything found as a minimum payment found on your credit report. This is important when getting a car loan or mortgage for example...and better DTI's could in some scenarios get better rate options, thus borrowed money is cheaper for those people with stronger DTIs.
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