Fannie Mae Lending Guidelines Change; More Strict On Borrowers

In conjuction with the temporary raise in loan limits, Fanne Mae has announced new lending guidelines for these new "jumbo-conforming" loans, which are more strict on borrwers than before. The possibility of this happening is why we wrote a post questioning whether the economic stimulus bill and higher loan limits would have a positive or negative effect on the housing and lending market.

In a nutshell, the new guidelines state that you:

• must have more money for a down payment
• need higher credit scores than before (in some cases)
• must have more money in reserves
• need to have less debt
• have to use at least 5% of your own money for a down payment rather than using all of the gift money from family towards the down payment
• are not allowed to receive more than 3% seller concessions

Here’s the above "in a nutshell" summary in more detail (directly from Fannie Mae):

Principal Residence

• Maximum Loan-To-Value (LTV) on a 15 or 30-year fixed-rate mortgage – down to 90%
• Maximum LTV on an ARM (5/1 ARM only) – down to 80%
• Limited cash-out refinance – down to 75%
• Cash-out refinance – no longer available
• Minimum FICO score – 660 (on fixed rate mortgage, if LTV is > 80%, minimum score – 700)

Second Home or Investor Property

• Fixed-rate mortgage or ARM – max LTV down to 60%
• Minimum FICO score – 660

Credit Requirements

• If primary residence – borrower must have 2 month PITI in reserves (previousy not required)
• If second home or investment property – 6 months’ reserves required

Debt-To-Income (DTI) Ratios

• 45% maximum DTI ratio – previously as high as 55%
• ARMs – qualify based on the fully amortizing payment (PITI) at the higher of the note rate or fully indexed rate (aka borrower must qualify at the "reset" rate, not the initial rate)

Down payments

• For purchases, borrower(s) must contribute at least 5% of their own funds, regardless of LTV – previously you could us all "gift" money for this

Seller Concessions/Contributions

• Maximum of 3%, regardless of LTV – previously up to 6%
• (No more 4, 5 or 6 percent seller concessions to "buy down the rate", pay prepay HOA/condo dues, etc)

Appraisals

• Fannie Mae’s maximum financing in "declining markets" policy applies for LTVs > 75% – much of Northern Virginia is considered a "declining market"

Mortgage Insurance (MI or PMI)

• Borrower-paid or lender-paid MI allowed, but it can not be wrapped up into the loan/financed

Pricing

• Fixed-rate mortgages – 0.25%
• ARMs – 0.75%
• (These fees are passed on to all borrowers so you either have to come out of pocket for this up front or roll it into the loan. If you roll it into the loan, it could be up to 3/8 of a point higher rate.)

Please note that these guidelines are subject to change at any time and without notice (as happens often). For more information and guidance, contact a mortgage professional. You can also visit Fannie Mae’s web site – www.efanniemae.com.

Thank you to Darran Anthony of Suntrust Mortgage for bringing this to our attention.