Have a 43% DTI Ratio? Wait Longer for Loan Approval

April 23, 2019

If you’ve been following the news, you might have heard that the Federal Housing Administration is putting up hurdles for higher-risk borrowers to get their home loan application approved. On March 14, the FHA said applicants with a credit score of 620 or lower, or with a debt-to-income ratio of 43 percent, would get their loan application reviewed manually rather than through automated underwriting. This isn’t a new policy—it’s a return to a policy the agency had but moved away from in 2016.

As a result of this return to its previous practice, high-risk borrowers will still have their application reviewed, but it will get extra scrutiny and take longer.

In a sense, the agency is going back to basics. There’s been an uptick in higher risk loans getting into its insurance fund, and it wants to take action before problems appear. “Continuing to endorse mortgages with higher risk characteristics, without changes, negatively affects the Mutual Mortgage Insurance Fund,” the agency says in its memo announcing the policy.

To be sure, many applicants won’t get approved for a loan now. But for others, it just means the decision will take longer.

Also covered this week on Voice for Real Estate is flooding in the Midwest. The devastating floods are a month behind us now, but the effects still linger. Some areas in Nebraska were hit particularly hard, in part because rivers were frozen at the time. Rising water broke the river ice into big chunks, some as large as five feet in diameter, and they clogged drains and damaged roads and property.

REALTORS® in the state and elsewhere stepped up to help people in need, but there’s still a lot of digging out to do. The video tells you how to make a donation if you want to help.

The video also looks at a generational shift that’s important to your marketing. Gen Xers, the age cohort born between the late 1960s and early 1980s, are now the new sandwich generation—the generation which is most likely to have both children and aging parents at home. For a long time, baby boomers were in this position, but the baton has now been handed off. That means you’re more likely to see Gen Xers rather than baby boomers looking for bigger homes.

Access and share the video, which is sponsored this week by the REALTOR Benefits® Program.