Change In Debt Ratio Guidlines From Fannie Mae

Here is some great information provided by Kathryn Pedersen and Holly Rogers of Yampa Valley Bank:

Fannie Mae will be changing their debt ratio guidelines as of the first of January. Debt ratio is total debt divided by gross (pre-tax) income. In the past, if a borrower had a strong financial profile, we could get loans approved up to a 60% debt ratio. The new changes will limit the debt ratio to 45% for most borrowers and 50% for only the very top tier borrowers (high credit, lots of assets, low loan to value, etc.). This limits what people can afford to purchase. It may also restrict people from refinancing their current loan.

For example, if a borrower makes $5,000 a month, their maximum of total payments (all debt payments and new housing payment) could have been $3,000 a month or 60% debt ratio.
$1,000 of car loan payments and credit card payments
$2,000 mortgage payment
$3,000 Total

With the new guidelines, they would be limited to a $1500 a month payment or a 50% debt ratio.

$1,000 of car loan payments and credit card payments
$1,500 mortgage payment
$2,500 Total

This results in a $83,000 difference in purchasing power! This adds one more incentive to buy now. If we start the loan in December, we can use the more flexible guidelines. Also, it is more important than ever to make sure that your buyers are pre-qualified.

Kathryn and Holly can be reached at 970.875.1609