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LOAN APPROVALS JUST GOT TOUGHER

By
Real Estate Broker/Owner with Realty One Group

 

Getting a mortgage loan approval is about to get a lot tougher as both Fannie Mae and Freddie Mac have opted to toughen underwriting guidelines for conventional mortgage loans as a direct result of the current housing and mortgage crisis.

Revised mortgage loan underwriting guidelines will call for higher credit score requirements, increased private mortgage insurance premiums, and lower loan to values (LTV's) for cash out refinance mortgage loans.  In addition, risk factors such as previous bankruptcies, foreclosures, and previous mortgage payment delinquencies will require longer recovery periods for conventional mortgage loans.

How a particular mortgage loan application is submitted for approval will depend largely on whether the application is submitted electronically through Fannie Mae's Desktop Underwriter (commonly referred to as DU) or non Automated Underwriting Submission.

Loans submitted through Desktop Underwriter typically require fewer loan stipulations, making it easier to get approved quickly.  Non-Automated Underwriting, which requires an experienced mortgage loan underwriter to review the loan application, requires greater scrutiny and typically takes longer to get an approval; however, manually underwritten loans are more forgiving for loan applicants with lower credit scores, unlike DU which prefers higher credit scores.

  A loan officer or mortgage broker will typically have only one opportunity to submit the loan application correctly, since choosing the wrong option could have very negative effects to the loan applicant.

The following is a review of the new changes to the underwriting guidelines:

Debt to Income Ratios: Currently DU will accept debt to income ratios of up to 45% of the loan applicant's gross monthly income.  The new DU guidelines call for more conservative debt ratios.  The exact debt ratio will be determined based upon the applicant's credit scores and other risk factors.  Non-Automated Underwriting guidelines will typically allow for no more than 36% of the loan applicants gross monthly income.

Mortgage Delinquencies: An applicant who has been no more than 60 days late on their mortgage in the last 12 months is "Ineligible" for loan approval, where previous guidelines allowed for a "Refer with Caution".   The new changes apply to manually underwritten loans as well.

Foreclosures:  loan applicants who have a previous foreclosure must wait a minimum of 5 years AFTER the foreclosure was satisfied, unless extenuating circumstances existed, which would allow a minimum of 3 years for consideration.  Applicants will be required to put down a minimum of 10% AND have a minimum middle credit score of 680.  Applicants applying for a cash-out refinance will be required to wait a minimum of 7 years after the foreclosure is satisfied to obtain a conventional mortgage loan.

 Bankruptcies:  Applicants who have filed for bankruptcy in the last 24 months or a bankruptcy that is not yet discharged regardless of the bankruptcy filing date are no longer eligible, whereas previous guidelines for consideration for applicants with compensating factors.

Cash out Refinances: Loan applicants with credit scores below 700 can expect to pay a minimum of 1 point for mortgage loans using more than 80% of the property's appraised value.  Lower credit scores coupled with higher loan to value loans will require loan applicants to pay as much as 4 points.

Although Fannie Mae and Freddie Mac are tightening up on their underwriting guidelines, there are still several very viable financing options that are more forgiving with credit issues, credit scores, and debt to income ratios.  FHA mortgage loans are growing in popularity, making it possible for applicants to qualify for financing with more liberal underwriting guidelines.  And there are still several loan programs available that fall in line with Fannie Mae and Freddie Mac, offering higher loan to values and debt to income ratios.

For a FREE brochure offering tips on shopping for a mortgage as well as the many differences in mortgage loan programs, please call 941-206-6000.

 

Mike Sikorski, MBA, GRI

Licensed Real Estate Broker

Licensed Mortgage Broker

Loss Mitigation Specialist

Florida Realty Network LLC

22079 Kimble Avenue

Port Charlotte, Fl. 33952

Phone (941) 206-6000

Email: Mike@FloridaRealty.net

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