August 18th, 2017 5:06 PM by Richard T. Cirelli
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
Here’s a quick summary of some of
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.
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.
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.