2008 Mortgage Regulation Changes
2008 Minimums and Maximums of Mortgage Regulations
It may be no surprise that mortgage regulations are getting tighter, but if you are in the market for a mortgage to purchase a new home, you need to know what those regulations are. Educate yourself about what it takes to get approved for a mortgage and find out exactly how much you can get approved for before deciding on that dream home that might be out of your range.
The New Minimums and Maximums of Mortgage Regulations
Getting approved for a home loan is not just about how much you can afford. There are a slew of other factors involved that affect whether or not you will get that mortgage, and many of those factors come with minimums on what you need and maximums on what you can get.
Your Credit Score and Income
One of the most important numbers when it comes to mortgage loan approval is your credit score, and the minimum number for that score is now 580. If your credit score is below that number, think about improving your credit before applying for a mortgage. You will also face not only higher minimums for income, but also increased maximums on your debt level. When that debt to income ratio is rather high, chances of getting approved for your mortgage become slim.
Fannie Mae Loan Limits
Fannie Mae has mortgage loan limits for all of its conventional mortgages. The 2008 loan limits went into effect on January 1, 2008, and are as follows: the single family residence loan limit is $417,000, the two-family loan limit is $533,850, the three-family loan limit is $645,300, and the four-family loan limit is $801,950. If you are looking for a home in Hawaii, Alaska, the U.S. Virgin Islands, or Guam, be aware that the loan limits are higher and you should check with your lender.
Past Bankruptcy and Foreclosure
If you owned a home before, but it did not end well, you need to understand what your options are for getting a new mortgage.
- If a Chapter 13 bankruptcy mars your credit, you will need two years from the date of the bankruptcy discharge. If it was a Chapter 13 dismissal instead of a discharge, or any other type of bankruptcy, you will need to wait four years before your credit can be re-established.
- Foreclosures require even more time: 5 years have to elapse before you will be considered for a new loan.
- If you have not experienced either, but you have been delinquent on a mortgage for more than 60 days in the past 6 months, you will be considered a risk and will have trouble getting approved for a new loan.
Risk Factors and Other Approval Guidelines
The new mortgage approval guidelines do not stop there. Any mortgage that is considered a high risk will have trouble getting approved. That includes interest-only ARMS (adjustable rate mortgages), and maybe somewhat surprisingly, a mortgage for a condo. Yes, you read that right. If you want a loan for a condo as opposed to a single family detached home, you will be considered a higher risk.
Also, when the loan to value ratio on a mortgage is greater than 85%, private mortgage insurance (PMI) is not going to lower your risk factor anymore. However, on a slightly different note, if you are self-employed, you will actually be considered less of a risk than you would have been in the past. Another new guideline to be aware of is that an authorized user on your credit card who has a better credit score than yours will no longer factor into your credit rating.
Expanded Approval Loans May Be An Option
Maybe you no longer qualify for a conventional mortgage, but if you come very close, then you may be able to qualify for an Expanded Approval loan from Fannie Mae. Do not get this type of loan confused with a subprime loan; there are still strict guidelines for approval. You will pay higher interest rates than a conventional loan, and if you have to pay PMI, those rates can be high as well.
Even though getting approved for a mortgage is harder than it used to be just a few months ago, do not set aside your dream of owning a home. Make an effort to understand the new guidelines and take the time to improve the areas of your application that you can. It may take a little longer than you originally hoped, but it can still lead you to mortgage approval for your new home.