If you're interested in Hilton Head villas and are hoping to qualify for a mortgage then you'll be interested in what we have to say about the process.
Fannie Mae’s latest version of Desktop Underwriter (DU), their automated-underwriting engine that must be used by every lender to approve loans if they want to be able to sell them to Fannie, requires you to increase your income and pay off your debt in order to have the best chance at getting a mortgage approved.
This year’s release dropped the maximum debt ratio allowed from 50% to 45%. This is significant because it drops the home price for which a buyer will qualify. In the case of a lower-end buyer with 10% down (and at the debt ratio limit) it takes roughly 11% off of the home price they can consider. There can be a huge difference between homes at $350,000 and those available for $300,000.
For a buyer at 50% debt ratio who considered putting 30% down on a $400,000 home in early December and decided to wait until after the holidays to make an offer, they now need to get the seller down to $300,000, because that is what they now qualify for. Unless they received an 11% pay raise as a Christmas bonus that is. The good news is that this change does not apply to FHA loans.
Fannie has also changed the way revolving debt is treated. Previously, if a borrower was pushing the debt ratio limit, and had a balance on their credit card that they were willing and able to pay off, they could do so and the monthly payment that went with that card balance would not be counted in their debt ratio.
Now, if a borrower needs to pay off a revolving account to qualify, they must also close that account and provide documentation that they have done so, or the payment will still be counted against them.