Mortgage News Update for Houston Home Buyers
If you are planning to buy a Houston home this summer, you might enjoy more buying power, and find it easier to qualify for your mortgage! Recently, Fannie Mae, a major entity in the secondary mortgage market, announced it would ease its mortgage underwriting criteria. Specifically, it is expanding the debt-to-income ratio it allows home buyers to carry. As of July 29, the new allowed DTI ratio will be 50%, representing a 5% increase over the prior limit of 45%.
This change applies to the “back-end” DTI calculations used in mortgage underwriting. Typically, this ratio examines your gross monthly income against your monthly credit card bill payments, car loan payments, child support, student loans and projected mortgage payment.
While a 5% increase may not sound like much, it could tip the scales for home buyers who have good credit, but are burdened by student loan debt, or other debt expenses that have kept mortgage qualifying just out of reach.
It should be noted that Fannie Mae’s DTI guideline change will affect buyers seeking a Conventional mortgage. Interestingly, Conventional mortgages may now be more advantageous to Houston home buyers than FHA loans, which traditionally appeal to first-time buyers. Here’s a quick look at how these types of mortgages compare:
- FHA down payment requirement: As low as 3.5%
- Conventional mortgage down payment: As low as 3%
- FHA mortgage insurance: required for life of the loan when the down payment is below 20%
- Conventional mortgage insurance: required when the down payment is below 20%, but only until 20% equity is achieved!
- FHA back-end DTI ratio: 43%
- Conventional mortgage back-end DTI ratio: 50% as of July 29, 2017
- FHA credit score requirements are more forgiving
- Conventional mortgages require better credit scores. However, they tend to offer lower interest rates.
Another factor to keep in mind, is that FHA mortgages are more difficult to work with when it comes to purchasing a condominium. A condominium building must be FHA-approved for any buyer to purchase a single unit with FHA financing. In the past, property managers found the FHA approval process time-consuming and cumbersome, and as a result, not all Houston condo developments are in compliance. This doesn’t mean there is anything wrong with the building; it usually means the management has declined to deal with FHA’s red tape.
In summary, if you are buying a Houston home and have been looking at FHA financing, you might want to consider your options under Conventional financing as well! It may require you to beef up your credit score a bit, but in return you could have better buying power, and a less expensive mortgage.
When you’re ready to buy a home, the KW Energy Corridor Team can refer you to local, trustworthy mortgage lenders who will fully discuss your financing options. We’ll be happy to introduce you to the home buying process, and help you find your ideal Houston home! Contact us today for your personal real estate consultation!
KW Energy Corridor Team
Michael Bossart
11757 Katy Fairway | Suite 930
Houston, TX 77079
908-872-9332
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