Fannie and Freddie Policy Changes Push New Homes for Sale in Florida
As the home buying season kicks into high gear, there’s good news for people looking to buy a home for the first time.
Fannie Mae and Freddie Mac, the government-sponsored mortgage associations, are introducing new rules — and changing others — in order to make it easier for first time home buyers to get into the housing market.
These changes push new homes for sale in Orlando. Many of these changes were made with students and millennials in mind.
The team at AV Homes specialize in understanding what these changes mean and can help explain these benefits to prospective home buyers.
With a variety of newly built homes for sale in Orlando, AV Homes is the best builder to help young buyers take that first step.
A Change in DTI
One of the first changes being made by the government agency affects the largest number of buyers. Fannie Mae announced it’s preparing to raise the debt-to-income ratio.
DTI is the No. 1 reason why mortgage applicants get rejected, according to an article by Kenneth Harney for The Washington Post. The problem affects Millennials disproportionately because Millennials often get stretched to pay their rent early in their careers.
With this proposed change, Fannie Mae is now looking to help more homeowners to enter the market.
Fannie will be raising its DTI ceiling from the current 45 percent to 50 percent, starting July 29. DTI is a borrower’s total amount of debt, including credit cards, student loans, auto loans and mortgages, versus their total income. However, Fannie Mae might be increasing its DTI ratio, but qualified mortgages still need a DTI of 43 percent.
Many people have reservations about lending at higher DTIs. However, Fannie Mae assures people that there is nothing to worry about when increasing the DTI to 50 percent. Using data spanning nearly a decade and a half, Fannie’s researchers analyzed borrowers with DTIs in the 45-50 percent range and found that a significant number of them have good credit and are not prone to default.
The article explains that if you earn $4,000 a month, previous guidelines allowed you to have total payments of $1,800 per month. If you had accounts totaling $700, your housing expense, including mortgage principal, interest, taxes and insurance (PITI) couldn’t exceed $1,100 per month.
After July 29, you’d be able to have payments totaling half of your gross income. If you earn $4,000 a month, you can have bills and housing payments up to $2,000 a month. If your other payments equal $700, you could qualify for a PITI of up to $1,300 a month.
At a 4 percent mortgage rate, you could borrow $178,000 under the old rule, and $220,000 under the new one. That’s a loan amount that is 20 percent higher!
This makes it easier to purchase the new homes for sale in Orlando. AV homes is there to help guide you through this major development.
Who Qualifies Under This Change?
Those who qualify under this change have strong applications. These applications usually have a substantial down payment, or great credit scores.
One thing that helps applicants is having good savings accounts after they close on their loan — enough to make several months of mortgage payment if you were to lose your job and your income stopped temporarily.
Applicants do not have to wait long and fret. Fannie Mae’s Desktop Underwriter software allows applicants to get a decision quickly. In addition, your lender can run the program again and again. You can try out several scenarios until you find a way to get approved.
Another Big Change Helps
Starting July 29, Fannie Mae will be approving self-employed borrowers, including those having as little as a year of self-employment history. This is also great news for first time buyers. Many Millennials are self-employed or attempting to create startups.
Traditionally, Fannie Mae, Freddie Mac, the Federal Housing Authority and the Veteran’s Administration have required a minimum two-year history of being self-employed before they can use two years of self-employment tax return income. The one year change will encourage home ownership and won’t deter entrepreneurship.
Fannie Mae and Freddie Mac define self-employment as owning 25 percent or more of a business or company. Fannie’s guidelines suggest it has successfully approved self-employed borrowers with just one year of tax returns.
Many first-time home buyers fit into the category of newly self-employed borrowers. If they’re thinking about purchasing, they should plan ahead. Apply for the loan on a pre-approval basis to be sure you’re good to go before you spend the time and money on an appraisal.
Another major change is the student loan payment calculation. Fannie Mae is simplifying the options available to calculate the monthly payment amount for student loans. The resulting policy will be easier for lenders to apply for, and may result in a lower qualifying payment for borrowers with student loans.
If a payment amount is provided on the credit report, that amount can be used for qualifying purposes. If the credit report does not identify a payment amount (or reflects $0), the lender can use either 1 percent of the outstanding student loan balance, or a calculated payment that will fully amortize the loan based on the documented loan repayment terms.
They are also simplifying the requirements for excluding non-mortgage debts from the debt-to-income ratio. Non-mortgage debts include debt such as installment loans, student loans, and other monthly debts as defined in the Guide.
If the lender obtains documentation that a non-mortgage debt has been satisfactorily paid by another party for the past 12 months, then the debt can be excluded.
AV Homes supports the changes made to increase the opportunities for first time home buyers. Owning a home is a huge step toward fully utilizing the American dream.
New home buyers no longer have to fret with some common obstacles that kept them out of the housing market. With the quality new homes for sale in Orlando FL, provided by AV Homes, their great first home is more available than ever.