As I posted on October 8, 2009, Fannie Mae announced that it would be lowering their required debt to income to 45%. As of this post, lenders are starting to email us to state that on November 16, 2009, they will no longer accept loan packages with a higher ratio on debt to income.
Though this is only a Fannie Mae guideline change, the lines tend to blur between Fannie and Freddie Mac as most lenders sell their loans to both. I suspect that most lenders will adhere to this guideline for all of their conforming and jumbo conforming loans even for FHA.
So what does this 45% debt to income ratio mean and how is it calculated? Very simply it means that your total debt–credit cards, installment payments, even student loans that are in deferred mode, and your mortgage payment–can’t be above 45% of your total monthly gross income.
To calculate your debt to income, add up all of your minimum payments then divide by your total monthly income. Here’s an example:
Total monthly gross income: $5000.00
Total monthly debt without mortgage payment: $1500.00
Plus mortgage payment (principle, interest, taxes and insurance): $2250.00
Total monthly debt: $3750.00
Divide $3750.00/$5000.00 = 45.00%
To make this calculation easier, you use this calculator to find out what you can qualify for. Or if you would like, please call or email me and I’ll be happy to assist you.
And as always, I report daily on twitter @mmtgsolutions on the mortgage interest rates and what to expect for the day. If one of these reports moves the market in a significant manner, I’ll write about it here.
Please remember, I welcome your comments to this and my other posts. Have an inspired week.
Betsy Moore
www.mooremortgagesolutions.com
206-331-2749
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