Fannie Mae to Raise Debt-to-Income Ratio

Fannie Mae

Mortgage loan giant Fannie Mae has announced that it intends to raise the acceptable debt-to-income ratio for acquiring a home loan. This comes as huge news for aspiring homeowners, as debt-to-income ratio is the number one reason for mortgage application rejection, according to Kenneth Harney of The Washington Post.

As of now, millennials make up the largest portion of the population to be rejected due to high debt-to-income (DTI) ratios, thanks in large part to high rent-to-income ratios early on in their careers. Fannie Mae’s revision to their DTI aims to help more millennials enter the home buying market without being a detriment to their ability to satisfy their mortgage payments.

According to an article by The Washington Post, Fannie Mae will raise its DTI ceiling from 45% to 50% in hopes of attracting large numbers of new home buyers, as Fannie Mae’s researchers found that individuals with DTIs between 45% and 50% were not prone to defaulting on loans, and many have very good credit ratings.

What is DTI?

Debt-to-income is a calculation of a person’s total amount of debt from credit cards, student loans, auto loans, and mortgages compared to their total annual income. Some in the industry have reservations about lending to borrowers with higher DTIs, but time will tell whether Fannie Mae’s research on this topic was accurate.

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