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Fannie Mae will change underwriting guidelines for conforming loans for San Jose and rest of the Bay Area. They are doing this to reduce their overall risk. Some of the changes announced recently and going into effect on the weekend of December 12, 2009 further tightens some of the guidelines. Here are the highlights:

Credit Score: All Fannie Mae loans whether underwritten electronically or manually will now require a 620 credit score minimum. There are very few exceptions.

Mortgage Insurance coverage: Borrowers loan-to-value exceed 80 percent of the property value now have a choice:

  • Accept higher mortgage insurance premiums month-after-month
  • Accept a one-time fee paid at closing to compensate for higher risk

Both options pass higher costs to consumers.

Debt-to-Income Ratio: Fannie Mae will no longer approve Debt-to-Income Ratio exceeding 45 percent except with very strong assets and credit to back it up. In no case can Debt-to-Income Ratio exceed 50 percent. Debt-to-income ratio is defined as the ratio between a borrower’s monthly payment obligations divided by his or her gross monthly income.

Other changes: Fannie Mae is retiring Biweekly Mortgage Loans because of lack of demand and there will be new risk-based pricing on “expanded level approvals.

To read the entire announcement from Fannie Mae click here