Rules Easing for Potential Home Buyers

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Aug 01, 2017

By Tory Meiborg, President and Partner at World Trend Financial

The prices of homes are again moving higher. Plus, strict underwriting of mortgages is still in place due to the Financial Crisis in the late 2000’s. As a result, many first-time homebuyers have found it difficult to qualify for a mortgage. There is good news; however, as some rules have recently been relaxed. These include:

Consideration of Employee Expenses. In the past, employee expenses taken against W-2 wages would reduce your income when qualifying for loans. Under the new rules, there is no adjustment for employee expenses.

Changes to Student Loan Payments. Even if a borrower had lowered their monthly student loan payment by electing a modified repayment plan, mortgage giants Freddie Mac and Fannie Mae would assume a monthly payment reflective of the 10-year standard amortization. Under the new rules, they consider only the actual payment.

Tax Liens & Civil Judgements. The three major credit agencies will drop tax liens and civil judgements from some consumers' reports if the information is incomplete.

Higher Debt Levels. Fannie Mae and Freddie Mac are also allowing borrowers to have higher levels of debt and still qualify for a mortgage. Debt to income ratios as high as 45-50% may be allowed, subject to a comprehensive risk assessment.

While we are still a long way away from the liar loans of the late 2000's, where the lender did not verify an applicant’s income, these recent steps should allow more people to qualify for mortgages.