July 5th - Increase In Fannie Mae’s Debt To Income Ceiling Should Make Your Next House Easier To Buy

Fannie Mae Ups Its Debt To Income Ceiling By 5%

This week’s Real Estate Round-Up starts with a discussion about Fannie Mae, the big, government-sponsored financing giant, raising its debt-to-income ceiling from 45% to 50% in July.  The debt-to-income ceiling, explains Terry, is the ratio of your total debt (mortgage, auto loans, student loans, credit cards, etc.) divided by your gross income, expressed as a percentage.  By raising this ceiling, Fannie Mae gives borrowers a bit more wiggle room on the amount of debt-related payments they can take on.  So home buyers, for example, can now have up to 50% of their income tied to various loans, including housing.  As a result, says Steve, they’ve got to pay taxes and manage their living expenses (grocery, gas, clothing, insurance, etc.) out of the remaining 50%, which doesn’t leave a whole lot of room for savings and investment.

Terry also says people should not be alarmed by this because, before raising the debt-to-income ceiling, Fannie Mae did some research and found that a significant number of these borrowers have good credit and were not prone to default.  So they’re not reckless; they just have higher debt because incomes aren’t rising that fast while the cost of housing, in particular, is going up.  So upping the ceiling gives more people access to home buying but, Steve cautions, borrowers must be careful to not overextend themselves and have no money left over for savings and the long-term.