The Changing Landscape of Lending

Underwriting Guidelines have changed quite a bit and it keeps changing. A few of the major changes are Debt-to-Income Ratio, how long credit documents are good for, use of retirement, stock and bonds as assets, credit score minimum, and verification of employments.

Below is an example of how this will affect the borrower:

· Debt-to-Income Ratio – A Debt to Income Ratio is calculated based on the amount of gross income in relation to the amount of monthly debt obligation (credit card bill, car payment… etc). Previously lenders were allowed to go rather high on the ratio. Up to about 55% debt to income ratio. The new change is 45%. How will this affect the borrower? The borrower will be qualified for a lower loan amount.
· Credit documents – Credit documents such as the credit report will go from 120 days to 90 days. This means you’ll have to updated your information to the lender as it will only be good for 90 days.
· Assets – Lenders were able to use 100% of the fund in stock and mutual accounts and 70% for retirement fund. Now, they are only allowed to use 70% for stock and mutual fund accounts and 60% for retirement. If you are planning on using funds from either account to show proof that you have enough cash for closing cost, you’ll have to make sure that there is more than enough or cash out on it and transfer it to a savings account (which the lender can use 100% of the fund).
· Credit Score – Minimum credit score is 620. Make sure FICO scores are high. The higher the score the better.
· Verification of Employment – Make sure that there are no furloughs or projected furloughs (unless they have been account for at the beginning of the loan process). The stability of your job is very important so make sure everything stated on your loan application can be verified.

More changes will be announced in the next few months. For more information, please call Linda Le, Loan Officer at 808-561-5943 Stay tune for more…