Two things are going to happen this month that will ultimately make it easier for a lot of people to get mortgage loans. The two major policy changes are technically unrelated, but both are expected to help borrowers who currently might not qualify. Of course, there is always the nuances that come into play with new rules, so let’s take a look at how these changes will affect our customers and the mortgage industry in general.
Credit Score Changes
The first policy change is being made by FICO (Fair Isaac Corp.) and the “big three” credit bureaus, Equifax, TransUnion and Experian. They will remove tax liens and civil judgments from certain consumer credit profiles if incomplete information is available. If a lien or judgment does not specifically and accurately include a person’s name, address and either a Social Security number or date of birth, it will not be included as part of their credit score with each bureau.
This is expected to affect up to 7 percent of consumers (roughly 15.4 million people) with current credit profiles. Their credit scores may rise up as much as 20 points according to FICO studies. These are significant numbers that will help many people dealing with civil judgments and tax liens get approved for mortgage loans that they may have not qualified for previously.
DTI Limit Changes
The second policy change going into effect will be made by Fannie Mae and Freddie Mac. They will be increasing their debt-to-income (DTI) ratio limit from 45 percent up to 50 percent. This means people with debt as high as half of their pretax income can still qualify for home loans. 5 percent may not seem like much, but again you are talking about millions of consumers.
The policy change from Fannie Mae and Freddie Mac was designed specifically to help people who are dealing with high levels of debt relating to student loans. However, it affects everyone.
Pros and Cons
The good news with both of these huge policy changes is that it will be easier for many to qualify for mortgage loans. Rent prices keep going up while interest rates remain low, so the conditions are ideal for a lot of people to buy soon. These changes could help you take advantage of current buying conditions.
However, the bad news is that these policy adjustments introduce more risk factors into the market. More consumers may be able to get loans, but can they afford them? The risk of default is certainly heightened.
Make the Right Mortgage Decisions
That’s why it’s best to speak with a knowledgeable mortgage professional, like those at Transparent Mortgage in San Diego. We’ll help you make the right decisions and avoid overextending yourself. We highly recommend going through a pre-approval process (not just a basic pre-qualification) before you buy. Our team will review all the factors and let you know what you can truly afford. Then you can make home offers confidently.
At Transparent Mortgage, we believe in transparency throughout the mortgage lending process. We’ll give you all the information and insight you need to make the right home loan decisions. Whether you are buying or thinking of refinancing, we’re here to help.
Call Transparent Mortgage today at (619) 929-0199 to get started on your mortgage loan pre-approval process.