Fannie Mae Eligibility Requirements

[Anne1208]

Hey! 

So my husband and I are hoping to buy next year.  Right now his middle mortgage score is somewhere around 660. We are hoping it goes up by next year but we shall see.

My student loan payments are on IBR (income based repayment), I have $175k (i know it stinks), but the payments are $400/mo.  Per the guidelines for determining our DTI ratios, they have to consider my monthly student loans at 1%/month rather than what I actually pay, so my loan payment in our back-end DTI is considered $1750/mo.

I was reviewing the Fannie Mae eligibility guidelines, and with that student loan rule, the house we want would put our back in somewhere in the 37% range (when in actually w my $400/mo payment our ACTUAL back end DTI would be 25%). I am just wondering how hard and fast these guidelines are? We will have well over 6 months' reserves available, but it kind of looks like we can't get into the 45% DTI range unless we get my husband's scores up.  The credit union lady said they do a back end of 45% but aren't they still bound by these guidelines?

Standard Eligibility Requirements - Manual Underwriting Excludes: Refi Plus, High-Balance, HomeStyle Renovation, and MyCommunityMortgage
	Maximum DTI ≤ 36%	Maximum DTI ≤ 45%
Transaction Type	Number of Units	Maximum LTV, CLTV, HCLTV	Credit Score/LTV	Minimum Reserves	Credit Score/LTV	Minimum Reserves
Principal  Residence
Purchase Limited Cash- Out Refinance	1 Unit	FRM: 95% ARM: 90%	FRM: 680 if > 75% FRM: 620 if ≤ 75% ARM: 680 if > 75% ARM: 640 if ≤ 75%	0	700 if > 75% 640 if ≤ 75%	0
660 if > 75%	6	FRM: 680 if > 75% FRM: 620 if ≤ 75% ARM: 680 if > 75%	2
2 Units	FRM: 85% ARM: 75%	680 if > 75% 640 if ≤ 75%	6	700 if > 75% 660 if ≤ 75%	6
680 if > 75% 640 if ≤ 75%	12
3-4 Units	FRM: 75% ARM: 65%	660	6	680	6
660	12
Cash-Out Refinance	1 Unit	FRM: 80% ARM: 75%	680 if > 75% 660 if ≤ 75%	0	700 if > 75% 680 if ≤ 75%	0
660 if > 75% 640 if ≤ 75%	6	680 if > 75% 660 if ≤ 75%	2
2-4 Units	FRM: 75% ARM: 65%	680	6	700	6
680	12

[frugalQ]

do you mean 37% back end or 47% back end?  I'm assuming 47% because 37% would not be an issue.

On your credit report, is there some sort of notation saying that your SL is on IBR?  If there is nothing that alludes to it, then it probably will not be an issue.  I have SL's and that lender never asked me for any additinal info on the payment.  Granted, I am not on IBR, but the lender didn't inquire if i was or not.  They just used the payment that shows on my credit report.

[Anne1208]

I know that my student loan payments will be considered at 1% for the monthly. I've already talked with a couple lenders and that is the rule so I know I am working with that number.

If the back end is 45% then it's no problem, but if because my husband's credit score is only like 660, I am concerned per the matrix eligbility requirements that we would be limited to a back end ratio of 36%, in which case this doesn't allow us to qualify for what we want unless and until my husband's score goes up.

Like I said, my actual student loan payment is $400, not $1800ish, so our actual back end is more like 24/25% with the house we want, but my concern is with their forcing me to have it be calculated as 1% of the total loan, that it will jeopardize what we want. The  credit union woman said 45% but my question is whether, per the Fannie Mae Eligibilty Matrix, if we MUST go with a max back end ratio of 36% so long as my husband's scores are below 680

[frugalQ]

the matrix you provided is for manual underwriting.  If you are approved through automatic underwriting, these rules would not necessarily apply.

[frugalQ]

do the lenders you've spoken to think that you wouldn't be approved through DU?

[frugalQ]

one other thing...this is a post from dpeezy on the 'change in student loan requirement'.  he's basically stating what i said above.  i believe it depends on how your account in notated on your credit report.

"Yes, look into graduated repayment. Starts off with a lower payment and gradually increases. For the loan's sake, you can use the low starting payment. If IBR will give you a payment other than 0, that will work too."

[cartwrna]

I would take the loans out of deferment, if able to and start the monthly payments right before closing. That way only $400 would be used in your DTI. If unable to continue payments AFTER closing put them back into deferment. My wife's loans we are able to cancel a deferment then reinstate it at a later time.

[Anonymous]

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@frugalQ wrote:

the matrix you provided is for manual underwriting.  If you are approved through automatic underwriting, these rules would not necessarily apply.

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+1.

[Anne1208]

My loans aren't in deferment, they're being paid according to the IBR plan.  The IBR plan is the best option and that's what they'll stay in for the next 23 or so more years.  With that said, my question is about whether my husband's credit score will somehow "force" the credit union to use a 36% back end ratio versus the 45% they said they generally do?

Can someone explain to me what automatic versus manual underwriting is and what would cause me to be in one or the other?  Thank you!  

[frugalQ]

automatic underwriting is when the lender inputs your loan information into an automated system (Fannie Mae's is called desktop underwriter) and get an answer whether they will purchase/accept the loan.  I don't think anyone knows the algorithm used, but if you get an 'approve/eligible' decision, you don't have to be subjected to the more stringent manual underwriting requirements.  Now, your file still goes through a manual underwriting process in the sense that an actual person reviews your file.  But, with an DU approval, the underwriter reviews your documentation based on the automated approval findings (and of course any lender overlays).

if you were not to get an 'approve/eligible' through DU, then how the lender views your student loan payment will be more of an issue.   With that said, (in most cases) how the lender views our student loan payment totally depends on how it is notated on your credit report.  that is why i asked how it shows on your credit report.

https://www.fanniemae.com/singlefamily/desktop-underwriter