Fannie Mae Easing Lending Standards

Less than a decade has passed since the US housing crisis in 2008 and Fannie Mae announced earlier this month that it will ease lending standards for home buyers. During the bubble of the mid-2000s access to bank financing was easy to acquire and as a result, many unqualified buyers were allowed access to capital they couldn’t afford. Since then lending standards have been very tight ensuring that only the most qualified buyers have access to bank financing for home purchases.

On July 29th, 2017 the debt to income ratio (one of the ways that lenders determine if they should lend to a borrower) will be raised from 43% to 50%. The move is said to be targeted at millennials who carry large amounts of student debt with the class of 2016 graduating with an average of $37,172 in debt according to the Student Loan Hero. The way debt to income works is for example – a person makes $4,000 a month previously the standards were set where total monthly payments on debt (car, student loans, credit, housing, etc.) couldn’t exceed 43% or in this case $1,720 a month. With large amounts of student loan debt, car payments, credit cards etc. even potential borrowers that meet the down payment requirements and have good credit would not be able to acquire financing for housing. The new standard raises that threshold to 50% or $2,000 a month in the example above providing more opportunity for borrowers.

The effect this change in lending policy will have is sure to increase the number of applicants who receive financing and number of home buyers. The question by how much how quickly is another matter, but with the loosening, it is quite possible, barring any outside circumstances or a major downturn that housing prices will continue to rise across the US especially where the markets are healthy. If you are someone who has been denied financing solely because of your debt to income this will be a great opportunity and may even open up the opportunity for Millennials with student loans who hadn’t considered purchasing a home until that debt is reduced.

Here is a link to the Washington Post Article from last week. Also, check out my article on the state of the Real Estate Market.


Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Powered by

Up ↑

%d bloggers like this: