If you’re like me, you probably came of age when the housing market crashed. You’ve likely wondered if you’d ever be able to own your home versus renting it. You may even have applied for a mortgage before and been rejected. This is especially true if you were a first-time buyer or had problems on your credit report. Good news for us, then! Fannie Mae has just made updates to their lending process for the first time in 25 years. These changes can make buying a new home easier.
Credit History Changes
In the past, your credit score consisted of whether or not you had paid your bills on time and how much you still owed. As of June 2016, Fannie Mae will now utilize your past 24 months of credit payments. This means Fannie Mae will not only look at your credit card bills and whether they’re being paid and how much you owe, but how you pay them. This is called “trended data,” as explained by @NatMortgageNews. This may allow you to get that mortgage loan if you:
- pay your credit card bills every month, making sure to
- pay more than the minimum balance due each month, or
- pay off your balance each month
Before, lenders could only see that Client A paid their minimum balance on time each month while Client B was late on their payment or had to break the payment into chunks each month. Now, lenders can see that Client B paid off their balance each month and is thus a lesser risk.
First-Time Buyers Are No Longer High-Risk
I’ve been leery of applying for a home loan in the past, as I had always been told it would be harder for me to get one as a first-time buyer. Mortgage lenders consider newbies to be high-risk; after all, a first-time buyer has no proven history of payment on this type of loan. Under the new Fannie Mae rules, however, my fellow first-time buyers and I are no longer unwanted. According to an update by @thepennyhoarder, our car and student loans can be taken into consideration to replace the mortgages we’ve never had.
Non-Traditional Credit History Counts
We all know the run down: bad credit is obviously worse than good credit, but no credit is even worse than bad. Loans of any kind are notoriously difficult for those with no or non-traditional credit history to procure. My mother urged me to get my first credit card at 18, just so I would be able to build up my credit history to avoid running into no-credit problems. With these new rules, @NerdWallet tells us things that didn’t count before, like your cell phone and insurance bill payments, may count if the home you wish to buy qualifies.
New Plan Calls for Fewer Home-Ownership Education Requirements
Called “HomeReady Mortgage,” this program replaces an older plan, MyCommunity Mortgage, as explained by @HousingWire. Under previous plans such as MyCommunity, first-time buyers of any kind (commercial or otherwise) were required to take a home-ownership education. Under the HomeReady changes, that requirement will be removed for limited cash-out refinancing options. It also eliminates the previously required landlord education for multi-unit properties.
New Loan Rules Call for Less Down
Down payments can kill a home buyer’s dreams. Using a breakdown provided by @ConsumerAffairs, I learned that on a home selling for $150,000, a previous down payment of 20% meant that you had to have roughly $30,000 to get the ball rolling. With the new HomeReady Mortgage from Fannie Mae, buyers are only required to put 3% down, bringing that payment down to $4,500, with financing available to cover the rest. A few things to know about the HomeReady Mortgage:
- The 3% loan requires a private mortgage insurance of 1% of the down payment.
- Income from non-occupant borrowers like parents can count towards qualifying income.
- Income from a non-borrower occupant, such as your part-time employed teenager, can also count towards loan eligibility.
These new rules were put in place in hopes of opening the market up to more modern, multi-generational families.
I hope that this list has helped you and given you some hope for your future buying prospects. As I go about looking into buying my first home, I’m happy to learn that it may not be as impossible as I had thought. Also, I recommend that you check out our tips for choosing the best insurance for your home. Was there anything we left out of our list that you would like more information on? Is there anything I didn’t mention that readers may like to know? Tell us more in the comments below, and don’t forget to share with your friends and family.