Denver Home Living Huettner Capital Summer 2017 | Page 7

F
annie Mae is easing some mortgage loan
requirements effective July 29, 2017. Changes
range from the amount of debt you can have
in relation to your income, to the number of
years of tax returns you will need to provide to
Fannie Mae, to the effect of disputed accounts on
your credit report. You can even consolidate student
loans into your home loan without higher fees and
restrictions typically required for cash-out refinances.
Finally, one additional benefit is that student loan
debt typically survives a bankruptcy, but mortgage
debt can be discharged. Every situation is different,
but this change offers more flexibility and options.
DISPUTED CREDIT
Originally, you had to count disputed accounts
in your debt-to-income ratio. That rule changed
to allow you to exclude payments from disputed
accounts. Then some folks got creative and disputed
some accounts solely to exclude them from their
debt-to-income ratio so they could qualify for a
bigger loan. So the rules changed again to not
even allow you to have a disputed account on
your credit report. This was a big pain because,
in order to get a mortgage, you had to remove a
disputed account from your credit report even if
you qualified with the disputed payment listed and
even if you were still disputing the account. The
problem is that it can take thirty to ninety days
to remove a disputed account from your credit
report; to expedite the process, you can pay several
hundred dollars to remove the disputed account in
one to two weeks. Including the disputed payment
and allowing an account in dispute to remain on
a credit report makes a lot of sense and removes
a huge problem that surprises many people.
DEBT-TO-INCOME RATIO INCREASE
Your debt-to-income ratio is the amount of monthly
debt you have relative to your monthly income.
Fannie Mae currently allows this ratio to be 43
percent—with some exceptions to 45 percent—but
that number will increase to 50 percent. This will
allow more people to qualify for loans and others
to qualify for higher loan amounts. The change
will be a difference maker for many borrowers.
Consider someone who makes $8,000 per month.
The 5 percent increase allows this borrower to
borrow $400 more per month—or buy about
$80,000 more house—than under the current
rules and still qualify for a loan. This can be the
difference between staying put or moving out of a
starter home to accommodate a growing family.
STUDENT LOAN DEBT CONSOLIDATION
Previously, any debt consolidation other than a
second loan used to purchase a home turned a
refinance into a “cash-out” loan with higher loan
requirements and fees. With the new Fannie Mae
rules coming in late July, you can consolidate
student loan debt without additional rules and
costs. Considering that many student loans have
higher interest rates than current mortgage rates,
and the interest on both types of debt is usually tax
deductible, you should add this debt consolidation
idea to your financial planning checklist.
TAX TRANSCRIPTS
Since mortgage rules tightened after the housing
crisis, most loans required a review of two years
of tax transcripts and, for some types of income,
the last two years of tax returns. Now only one
year is required in many cases. This change will
not only reduce the amount of documentation
required for many borrowers but also allow some
borrowers to qualify for higher loan amounts.
Previously, if your income increased from year to
year, your income was averaged. With this change,
your most recent—and likely higher—income
year is used. If your income decreased from year
to year, you previously had to use the most recent
year with lower income anyway, so there is no
change there. In my opinion, the real benefit is in
not having to track down a K-1 from two years ago
for a company that no longer exists just because it
was part of the tax return from two years ago.
Depending on the amount of equity in your home,
the amount of your student debt, and the interest
rates on that debt, consolidating the student debt
could save you enough money to justify the cost of a
refinance. The lower rate could make a big difference
for those struggling to make payments with a typical
repayment plan, and a longer repayment period
could keep the loan balance from growing as fast.
A recognized personal finance expert with over fifteen years of direct
experience, Todd Huettner is frequently quoted in the trade and business
press including The Wall Street Journal, CNBC, Credit Karma, and Realtor.
com. He is President of Huettner Capital, a residential real estate mortgage
lender located in Denver, Colorado. In addition to earning an economics
degree and an MBA, Todd has been licensed as a real estate agent in multiple
states and been an underwriter, financial analyst, and consultant.
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