RTC Mortgage Blog

Looser Underwriting Guidelines?

It’s taken a while but the pendulum is swinging back to a much more reasonable happy-medium when it comes to underwriting guidelines. We all know that it was practically non-existent underwriting criteria that led to the collapse of the mortgage and financial markets several years ago. Then, the pendulum swung so far the other way that it seemed almost impossible to get approved for a mortgage. Now, things have become more reasonable. Some are even saying it might be too loose again.

Regardless of your opinion, here are some of the more recent changes that are making it easier to qualify for a mortgage. Keep in mind that these changes pertain to “conforming” loans originated by lenders and sold to the Government agencies known as Fannie Mae and Freddie Mac. Therefore, it pertains to almost all loans originated by any lender with loan limits up to $636,150 in the highest priced markets such as Orange and Los Angeles counties and most of the Bay Area counties in California.

Here’s a quick summary of some of the changes:

Less Self-Employment Documentation:

In some instances, self-employed borrowers can now be approved with just 1-year of tax returns instead of 2 years.

Higher Debt-To-Income (DTI) Ratios

Applicants with compensating factors may now receive approvals with a Debt-To-Income ratio up to 50%. Previously, the cutoff was 45%.

Lower Down Payments/Higher Loan-To-Value Ratio’s

There are programs allowing as little as 3% down.

Appraisal Waivers:

In certain refinance transaction, the appraisal can be waived altogether, saving the borrower hundreds of dollars. We will see this apply to Purchase transactions soon too.

Disputed Tradelines:

If a borrower disputed certain information in their credit report, we used to have to get those disputes cleared, adding to the time and effort it took to receive loan approvals. This is no longer the case.

Lower Credit Scores:

Many lenders have lowered their minimum FICO scores for qualifying. The minimum score allowed by Fannie Mae/Freddie Mac remains 620 but lenders often impose their own higher limit. Lower limits may be a result of lender trying to increase their lending volume as the number of refinance and purchase loans have slowed down this year.

Keep in mind that these changes do not pertain to all loans and all lenders. Each lender has the right to create their own stricter guidelines than what The Government Agencies permit. But, these changes do apply to most of the lenders that we work with.

Give us a call to see how they impact your particular situation.