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By G. Steven Bray
Let’s look at some recent changes to loan guidelines that make it easier to qualify for a mortgage. These changes apply to Fannie Mae conventional loans.
– First, many folks, especially those employed in sales, have been penalized when applying for a mortgage if they write off business expenses on their tax return. Underwriting rules said we had to deduct the written-off amount from qualifying income. Fannie has changed that. For salaried borrowers or those with commission income that’s less than 25% of total income, the new rules say we can ignore the expenses.
– Second, with recent home price appreciation, some homebuyers are choosing to keep their current homes and rent them. Previous underwriting rules required that the current home have at least 30% equity in order for us to count the rental income and required the homebuyer to have extra cash or reserves to cover up to 6 months of housing payments on the current home. The new rules eliminate the 30% requirement, but the homebuyer still may need reserves depending on the financial strength of the borrower.
– And, finally, if reserves are required, a borrower now can use 100% of vested retirement account balances to satisfy the requirement. The previous rules required that we use a discounting factor of 60%.