Underwriting Guidelines Loosened August, 2015
How That Can Help You Buy a Home Now
Big changes to Underwriting ... made by both Fannie Mae and Freddie Mac ... came to hopeful Home Buyers last August (2015). Corresponding Underwriting Software Programs changes for both Fannie and Freddie were also made around that time ...
As these two GSE's (Government-Sponsored Enterprises) presently oversee a majority of residential financing transactions in the world of Conventional Financing, any changes they make have a potential for huge impact. In sheer numbers alone, changes made by these GSE’s can have rippling, long-reaching results.
What are some of the changes made in August, 2015?
Why are they so important?
And WHO benefits the most from their having taken place? (Answer? Home owners hoping to retain their current Primary Residence while purchasing another.)
As a bit of background …
Prior to the August 2015 changes: Borrowers had to meet several fairly restrictive conditions when seeking mortgage financing. For many, the biggest hurdle faced during the financing process surrounded the Rental Income on their current home.
Because a large number of Home Owners found themselves in negative equity positions (or "underwater") as a result of the housing crisis, many made a financial decision to rent-out their underwater homes while living elsewhere.
There were obvious positives to be found in their decision, but there could also be some negatives associated with it. For homeowners that hoped to pursue the purchase of a new home (while renting their current home), steep challenges were being found prior to the August 2015 changes made.
Under OLD rules: Borrowers couldn't leverage any Rental Income derived from their current (rented) property against a new home’s Mortgage Payment.
Buyers with less than 30% equity in their "retained property" had to meet stringent guidelines in this scenario. Old guidelines dictated that hopeful Borrowers come up with a 6 months of Reserves, in addition to Down Payment and Closing Costs.
But with new August 2015 changes in play, that has changed. Homeowners “underwater” and in a negative equity situation on their current home value VS its mortgage balance, face "loosened" guidelines and an easier time qualifying for financing on a new home purchase.
It's important that the public is aware of the new reality: New options may now await those hoping to buy and re-enter the housing market.
Previously found disappointments may no longer exist. Homeowners that inquired about home financing in the past and thought themselves stuck in their current home may now qualify for the purchase of a new home.
Other August, 2015 changes that could be “game-changers” for current hopeful Borrowers:
- Fannie Mae loosened guidelines regarding the way Underwriters calculate Income, and/or view certain business expenses claimed on a person's tax returns.
And more good news:
- Assets, such as stocks, bonds, investments, and mutual funds may not have to be liquidated when the funds are simply being documented to strengthen a Borrower's Reserve Funds.
Prior to August 2015 changes: The above-mentioned investments were discounted as much as 40% off the current fund/stock value when they were being used to "prop-up" a Borrower's file. Now, in some cases, they're allowed at their FULL present value.
For those that have paid their mortgages on time and simply lacked home equity, the changes freed them to pursue home buying once again. They're now able to rent/retain their current home until it is more financially advantageous for them to sell it.
Combine the benefits of current low interest rates, the low down payment programs available (see my post “You Don’t Need a 20% Down Payment to Buy!”), home prices … with the advantageous changes made by Fannie and Freddie in August of 2015 … and potential Buyers now have a perfect trifecta of reasons to consider action.
Bottomline: Changes are constantly taking place within mortgage lending. What was true for homeowners and Buyers yesterday, may not be true today or tomorrow.
Mortgage Programs, rules, regulations, interest rates, and available financing options constantly evolve and change. That means the answers and outcome found when seeking mortgage financing can change too.
If hoping to buy a new home or refinance your current one: Don’t let answers received prior to the changes defeat you forever.
Talk to a Mortgage Originator today. Get facts and answers based upon current mortgage programs and options available.
Especially for “underwater” homeowners, those presently renting their homes, and Borrowers in need of documenting Reserve Funds, the changes made by Fannie Mae and Freddie Mac last August may manifest themselves into new outcomes and pleasant surprises. Contact me to find out …
Mortgage Originator - NMLS #216987 - IL Lic. #031.0006220 - WI Licensed