New Underwriting Guidelines
Fannie Mae just announced that during the weekend of July 29th, 2017 they will implement a new version of their Desktop Underwriter(DU). DU is an Automated Underwriting Service, which helps lenders assess risk when processing a mortgage application. The new changes will help many families get home loans that they may have been previously denied.
Changes Taking Place
The new DU release will update the following: maximum allowable debt-to-income(DTI), disputed tradelines, ARM loan to value ratios, and self-employment documentation, employment offers, and timeshares.
Max DTI
Previously, the maximum allowable DTI was 45% unless there were compensating factors. With the new update loan application will be considered up to 50% DTI without compensating factors. This extra 5% is a really big deal for people looking to buy a home, especially when negotiations are really tight in a market like this. This can also prove useful for people whose income is either expected to increase in the near future or in other cases where a person’s entire income can’t be used for qualifying.
Disputed Tradelines
There is a misconception that disputing things on credit will get them removed. If an account on your credit is not yours or is inaccurate this can help remove it, however, sometimes the account will continue to show on credit as “disputed”. In the past if an account shows as disputed the borrower would either have to have the dispute removed or provide an explanation as to why they disputed the account. Now, DU will be a lot clearer on what needs to happen with a disputed account. This will potentially prevent some headaches for both the borrower and the loan officer.
ARM LTVs
Wow, that’s a lot of acronyms! ARMs or Adjustable Rate Mortgages are typically seen as risky by consumers. However, they have many benefits for the right person. LTV or loan-to-value refers to loan amount vs. the amount of down payment. So, if someone puts 10% down for example the LTV would be 90%. ARM LTVs will now be in line with fixed-rate mortgages at 95% LTV or a 5% down payment.
Self-Employment Documentation
There will be an increase on Approves from DU with self-employed borrowers with just 1 year of both business and personal tax returns. Typically lenders need to see 2 years of tax returns for people that are self-employed, so this update could help people who match the eligibility.
Employment Offers
Typically, if you were to start a new job while in the loan process, you would have to provide your first paystub for underwriting. Now, even if you won’t start the new job until after closing, that income can be used provided you have a contract for the new job.
Timeshares
In the past, timeshares have shown up just like a regular mortgage. Now, they will all appear as installment loans.
Podcast: Play in new window | Download
