Fannie Mae set to ease debt-to-income requirements
Qualifying for a mortgage from Fannie Mae is about to get easier. The government-sponsored enterprise plans to increase its debt-to-income (DTI) ceiling from 45% to 50% as of July 29, potentially opening the door for many first-time homebuyers.*
What is DTI?
To calculate your DTI ratio, divide your monthly debt payments by your gross monthly income. For example, if you pay $2000 per month in rent payments and other bills and you make $5000 per month in pre-tax income, your DTI is 40%. For Fannie Mae and other mortgage backers, it’s all about leveraging risk. A low DTI means you’re more likely to keep up with your mortgage payments.
What does this change mean?
Many borrowers—especially Millennials early in their careers—are thriving financially but carry a high DTI, often due to student loan debts. However, the risk of a slightly higher DTI can be alleviated by other factors in their credit profiles. These include:
- A significant down payment
- 12 months or more of reserves
- An excellent credit rating
- A healthy income
While FHA loans are an alternative option for first-time homebuyers with high DTI, they typically come with higher interest rates and mortgage insurance premiums. Fannie Mae’s increase to 50% can help you qualify for a great loan for your dream home!
Reference: *WashingtonPost.com, “Fannie Mae will ease financial standards for mortgage applicants next month”