Traditionally debt-to-income (DTI) ratios are the primary reason for loan declinations, especially for millennials, who are just entering the work force but have student loans and other bills. Additionally, self-employed borrowers face challenges when required to average two years of income.  Fortunately, one of the country’s largest mortgage sources, Fannie Mae, recently eased financial standards in hopes of helping new, otherwise-eligible buyers.

Effective July 29, DTI requirements eased up from 45 percent to 50 percent. What is DTI? It is a ratio percentage that compares a potential borrower’s gross monthly income to his or her monthly payments such as credit cards, auto loans, student loans, etc. in addition to the projected new mortgage payment. 

The self-employed can also rejoice as they now only must show one year of tax returns to qualify for a mortgage.

Even with these new requirements, borrowers must understand that not everyone with a DTI 50 percent or lower will automatically qualify for a Fannie Mae mortgage.  Lenders must still look at the total picture which includes down payment, income amount/stability, credit scores, and other key components. 

It is important to work with an experienced mortgage professional who can walk you through the often-complex process of applying for a home loan and help you make decisions in your best interest. 

Still have questions? Contact our friends at First Option Mortgage for more information:

Jarad Vinup, Area President

317-713-9505