Fannie Mae raised the bar for mortgage applicants this past weekend. Getting approved for a home loan just got harder.
Fannie Mae says the updates minimize long term lending risks. The immediate changes are major. The first pertains to credit scores.
Effective December 13, 2009, the bulk of Fannie Mae’s loans require a 620 credit score minimum. There are very few exceptions.
A second relates to loans with private mortgage insurance.
Homeowners whose loan to value exceeds 80% now have a choice:
- Pay higher monthly mortgage insurance premiums
- Pay a one time fee paid at closing to compensate for higher risk
Both options result in higher consumer loan costs.
A 3rd change concerns maximum debt to income ( DTI ) ratios. Fannie Mae will no longer approve loans with debt ratios exceeding 45%, except with very strong assets and very high credit scores.
In no case whatsoever may DTI exceed 50%.
So, home prices are rebounding, mortgage rates are low, and, for 5 more months at least, there’s a federal tax credit for qualified buyers. You don’t have to buy a home now, but with mortgage guidelines sure to tighten in 2010, now may be a better time than later.
The best “deal” won’t matter if you can’t get qualified on your mortgage.