We have seen several changes in the last couple of years regarding all mortgages. Fannie Mae is going to make some more changes soon. Freddie Mac hasn't said the same thing, but they frequently will follow Fannie Mae.
Minimum credit scores will be 620 (most of us are already requiring that). There are some lenders that are going to require a minimum 640 (even for FHA/VA loans). In the past credit reports could be 120 days old, now they must be 90 days or less. Some lenders will require a new credit report after 60 days – or some type of update. The concern is new debt that may not be on the current report. Also possible new late payments that will affect the approval. If your score is on the bubble for qualifying for a program, having to pull a new report could affect the loan approval.
Total debt to income ratios of 45%. Right now most mortgage insurance companies require no more than 41% debt to income ratios, but if you were putting more down, you could go over that. In the past it was common to see ratios of 50% – sometimes higher. That is changing. Debt to income ratios mean your total house payment plus installment (car payments, student loans, etc) and revolving (credit cards) debt into your monthly gross income.
Loan level pricing adjustments. That means that if you are doing a conventional mortgage with 20% down and your credit score is 740 or higher, you get the best rate and no add-ons to the rate. If you are doing a cash out refinance, there will be an add on – even with a credit score of 740. If you live in a condo, there will be an add on to the rate - how much will depend on the equity in the home. If you have a lower credit score there will be an add on and depending on how low, you may not be able to get mortgage insurance. Most MI companies are requiring a 700 – 720 credit score, especially if the property is in a declining market.
Fannie Mae, Freddie Mac and FHA mortgages are all making changes – some small, some bigger that affect all of us. Because of the foreclosures in the last couple of years, it has made it more difficult to qualify for a loan, but it can still do done! If you aren't sure, meet with a loan officer and see where you stand. You may need to make some changes to your credit or save some money, but a loan officer can tell you what you need to do and work with you to get a mortgage approval!
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