Home financing giant Fannie Mae will ease its requirements by raising its debt-to-income ceiling from 45 percent to 50 percent on July 29, 2017. The move could pave the way for a larger number of new buyers to qualify for a mortgage, particularly millennials who may be saddled with student loan debt.
The debt-to-income ratio compares a person’s gross monthly income with his or her monthly payment on all debt accounts, including auto loans, credit cards, and student loans. It also factors in the projected payments on the new mortgage. Lenders see applicants with lower debt-to-income ratios as less at risk of defaulting.
Some call the move “a big deal” for potential buyers being rejected for mortgages before this change.
This doesn’t mean that anyone with a debt-to-income ratio of below 50 percent will be approved. Borrowers will still be closely vetted to examine their complete application, including income, down payment, credit scores, and more.