16 May Mortgage Denied
Getting a mortgage just keeps getting tougher and it seems as if many homebuyers are getting rejected for loans they could easily afford.
What’s the issue? Tighter standards from Fannie Mae and Freddie Mac.
Without the Fannie and Freddie guarantee, banks are reluctant to make loans.
In 2009, the agencies lifted the minimum credit score that borrowers must have from 580 to 620; however, they’ve pushed through a host of other requirements to coincide with it. What does that mean? Real estate sales don’t happen, even for many low-risk borrowers.
It really seems as if there is a great deal of overreaction to the declining housing market and it has caused the pendulum to swing too far in the other direction.
Sometimes it has little to do with the buyers themselves and how qualified they are. Banks must turn down borrowers for mortgages if too few of the condos in your association have been sold or if more than 30% are still owned by the company that built the complex.
Fannie and Freddie will also refuse to fund condo loans if more than 15% of owners are behind on homeowner dues or if more than 10% of units are owned by a single entity.
While the minimum credit score has been lifted, the agencies have actually increased their emphasis on income relative to debt. If someone’s total debt payments exceed 45% of income, the mortgage will be denied. In 2009, the limit was 55%, according to CNN.
These rules can penalize very qualified buyers, ones who should be able to meet their debt obligations.
Fannie and Freddie also used to be okay with one or two missed credit card payments. Now, one missed payment will greatly affect your debt-to-income ratio, as banks will add 5% of your outstanding loan balance to the debt part of the calculation.
Do you think Fannie and Freddie are too stringent now, or do you think it’s a good move to reclaim the economy? Post your thoughts below or on our Facebook page!