As many people who have purchased a new home or refinanced since the financial debacle of 2008/ 2009 have likely noticed, the guidelines to qualify for a mortgage were tightened considerably. Since then, these guidelines have gradually loosened to accommodate more individuals looking for a mortgage. The most recent changes are the extremely beneficial and will certainly help many people qualify for a mortgage that could not previously. I have highlighted some of the changes below.
50 % DTI - One of the qualifying requirements for a mortgage is to have an acceptable Debt to Income ratio. This ratio is an indication of the ability of the borrower to make their monthly payments. This ratio was previously 45%, but has now increased to 50% allowing more borrowers to qualify for a mortgage.
1 YEAR SELF EMPLOYED TAX RETURNS - Self-employed borrowers have long had issues obtaining a mortgage. Several of the guidelines surrounding self-employed income have been loosened, including the use of the most recent tax return instead of needing 2 years. There are other qualifying criteria, but the essential point is that progress is being made to access the risks associated with self-employment rather than the length of time of self-employment.
NEW EMPLOYEMENT – Previous guidelines required a new employee to start their new position and receive an actual paycheck before funding. We are now able to use employment offers for clients with new employment without the need to wait for paystubs. This will save time in waiting for paystubs to arrive, which can often take weeks depending on the employer.
ALIMONY – Prior to the recent change, when one spouse was paying alimony to the other, we had to treat that payment as debt which negatively affected the client’s debt ratio. The new guidelines allow the underwriter to deduct the debt from the borrower’s income so the borrower DTI can be evaluated based on the net income available to him after the payment. This has a strong positive effect on the debt to income ratio and will allows borrower with alimony payment to obtain financing.
CREDIT REPORTING – Delinquent tradelines on a credit report that are being disputed will no longer required documentation unless it is required for loan approval. This is a nice improvement for reducing paperwork and saving time.
If you would like to learn more about these changes, please reach out to our team at Mountain State Financial Group. We would be happy to discuss how these changes and see about qualifying you for a new mortgage to purchase a home or refinance.