Fannie Mae, biggest money for home mortgages, is raising the Debt-To-Income ratio to 50%.
Yes, from 45 to 50% on July 29th.
Debt-To-Income ratios are one of the calculations used in determining a borrowers ability to repay a mortgage. How much monthly debt vs. how much monthly income. In other words, can they afford that new mortgage payment on their current salary and still have money left over to spend for daily life?
Well, Fannie Mae has researched and decided that some people can definitely handle that higher DTI ratio. Not everyone, but some. Their justification is it will help more people get into homes.
It's not just DTI though, as two different articles remind us, it's also down payment. They both pointed at the Millennials as the group they were targeting to help buy their first home. And, one distinctly made me laugh when it noted that Millennials are accused of overspending on 'avocado toast' (hey that stuff is tasty!), that they don't have the savings for a down payment anyways so how would the increased DTI really help them get into a home.
And, of course, the other talk swirling is will this lead to another housing bust due to mortgages being given to those that can't repay....this was the final line comment that I smirked at:
At least lenders bother to verify income, demand a down-payment, and check the DTI ratio. There's a big difference between asking the maximum standard for ability to pay and basically not measuring one's ability to pay at all.