This probably isn't news that anyone who sells real estate wants to hear, but getting approved for a mortgage is about to become more difficult.
From what I've read here, and what agents have told me in person, you thought it was difficult enough all this year!
Fannie Mae has announced regulation updates meant to reduce its risk... beginning with a requirement for a credit score of 620.
Other changes include options regarding mortgage insurance. Buyers whose loan-to-value ratio exceeds 80% can choose to accept higher monthly mortgage insurance premiums or pay a one time fee at closing to compensate Fannie for the higher risk. Either way, they'll be paying more. It would be a good idea to talk with your favorite mortgage broker to see just how much the increased fees will add to a monthly payment before helping buyers decide on the maximum price they can pay for a home.
Debt to income ratios are also under fire. Fannie Mae will no longer approve ratios exceeding 45%, unless the borrower has very strong assets and exceptional credit scores. In no case will they approve a debt to income ratio over 50%.
These changes are due to be implemented during the weekend of December 12, so serious buyers who may be on the edge of not qualifying under the new rules should get their loans closed prior to then.
So what can you do? Get going on a buyer letter!
Let your buyers know what's about to happen, and encourage them to take the plunge if they've been waiting to see if rates will fall or a new buyer tax credit will be announced. After all, financial gurus are predicting that rates are now as low as we'll see in the next ten years. And... a buyers' credit won't do them much good if they can't get a loan.
This is looking like a big game - so it won't surprise me at all if a new credit is announced immediately after the new Fannie Mae regulations go into effect.
Something else you can do right now is to start providing your buyers with information on steps they can take to raise their credit scores. According to the chart provided on the Fannie Mae announcement, one point can make a considerable difference in the amount they'll pay for mortgage insurance, especially if they're making application for a 95% loan.
The cut-off points are at 640, 660, 680, and 720. A score of 740 or more pays the least mortgage insurance. If you can provide the tips that raise them from 639 to 640, or from 739 to 740, they'll love you!
New Desktop Underwriting guidelines will call for a credit report less than 90 days old on an existing home purchase - so everyone who has been struggling to get approval for a short sale for 4 or 5 months will have to submit a new credit report. Construction financing gets a break - 120 days.
Other Regulations:
"Trailing Secodary Wage Earner Income" will no longer be considered, and loan officers will be required to get verbal verification of employment within 10 days of the loan closing.
Borrowers using stocks, bonds, or mutual funds as assets for reserves need to remember that only 70% of their current value will be counted, while retirement funds will only be counted at 60% of value.
If Fannie Mae had used guidelines like these a few years ago, instead of making loans to anyone who could fog a mirror, you probably wouldn't be faced with the glut of REO's and short sales you're dealing with today. Seems like they can't find any common-sense middle ground.
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Seems like things are going to get a little tougher out there.