In a move that could bring New York co-op and condo apartments within reach of many borderline buyers, especially millennials, the mortgage giant Fannie Mae plans to ease its debt-to-income (DTI) requirements for prospective home purchasers, the Real Deal reports.
Fannie will be raising its DTI ceiling from the current 45 percent to 50 percent, as of July 29. DTI is essentially a ratio that compares an applicant’s gross monthly income with monthly payment on all debt accounts – credit cards, auto loans, student loans, etc., plus the projected payments on the new mortgage. A high DTI is the number one reason mortgage applicants nationwide get rejected.
The federal “qualified mortgage” rule sets the safe maximum at 43 percent, but Fannie Mae, Freddie Mac, and the Federal Housing Administration currently have exemptions allowing them to buy or insure loans with higher ratios.
“We feel very comfortable” with the increased DTI ceiling, says Steve Holden, Fannie’s vice president of single family analytics. “What we’re seeing is that a lot of borrowers have other factors” in their credit profiles that reduce the risks associated with slightly higher DTIs, including the ability to make a significant down payment, and a healthy reserve of 12 months or more to handle a financial emergency without missing a mortgage payment.
Lenders are welcoming the change. “It’s a big deal,” says Joe Petrowsky, owner of Right Trac Financial Group in Connecticut. “There are so many clients that end up above the 45 percent debt ratio threshold” who currently get rejected, he says. Now they’ve got a shot.
That doesn’t mean everybody with a 45 percent-plus DTI ratio is going to get approved under the new policy. Applicants will still need to be vetted by Fannie’s automated underwriting system, which examines the totality of each application, from the down payment to income, credit scores, loan-to-value ratio and a slew of other indices.
But for apartment seekers – and for co-op and condo boards that hate to have empty apartments in their buildings – the change is very good news.
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