Mortgage Planning Tips

Fannie Mae, the giant mortgage finance company that helps shape lending guidelines, is raising minimum credit score requirements and will limit the amount of overall debt that borrowers can carry relative to their incomes.

Starting Dec. 12, the automated system that Fannie Mae uses to approve loans will reject borrowers whose credit scores fall below 620. Previously, the cutoff was 580. Also, a borrower’s maximum debt-to-income ratio (the percentage of a consumer's monthly gross income that goes toward paying debts) has been lowered to no more than 45%. The company will raise the level to 50% in cases with "strong compensating factors."

These changes are the latest in a series of crackdowns by the mortgage industry and could surprise some prospective home buyers. The lowering of the debt-to-income ratio is a big deal and will result in many more loans being declined from otherwise strong borrowers.

As such, it is more important than ever for both Real Estate agents and their prospective home buyers to work with a true mortgage professional who will roll up their sleeves and go the extra mile in advising home buyers and getting them properly pre-approved.