For many millennials — over 80% in a recent survey — student debt has become a barrier to home ownership. Despite being in their prime years to buy their first home they expect to delay buying a home by seven years. Earlier this year however home lenders Fannie Mae and Freddie Mac changed some of the requirements to debt-to-income (DTI) ratios. Fannie Mae raised the DTI ceiling from 45% to 50%, which may open the door to home-ownership for many new buyers.
To understand these changes, you must know what DTI means. Essentially your debt-to-income ratio compares your gross monthly income to your monthly payment on all debt accounts which can include student loans, car payments, and credit card debt. When applying for a mortgage your DTI will also include projected payments on the mortgage you are seeking. If your DTI was over 43%, which is the safe maximum for the federal “qualified mortgage,” you may have to pay down some of your other debts to be approved, or you would have trouble getting a mortgage loan.
While these changes may make home ownership more available, getting loans through the big mortgage names like Fannie Mae and Freddie Mac can still have drawbacks. One of these drawbacks can be that their credit score requirements can be more restrictive, so those with a mid FICO score of 600 can still be denied. The interest rates can also be higher at Fannie Mae or Freddie Mac compared to home loans offered at credit unions.
If you have student debt or think you may not be a traditional candidate for a mortgage, a credit union may be your best option. Traditionally credit unions have been much more willing to work with their members to get them into a home. Since credit unions are non-profit organizations they can offer loans at lower fees and with lower mortgage rates. Credit unions also tend to hold their mortgages instead of selling them to third-party servicers. This allows for more flexibility in DTI ratios, credit scores, or even incomes that are harder to verify like contractors or those that are self-employed. All of this means that for people who are not candidates for traditional mortgages with traditional institutions working with a credit union like Palisades Credit Union can help them realize their dream of being a home owner.
If you have questions about the changes to mortgage requirements, the debt-to-income ratio, or just how a credit union can help you with the mortgage process contact us today! We can help you and answer any questions you may have to help you buy your dream home.
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