When I think of the first half of 2022, the 1996 hit song by Sheryl Crow, "A Change Would Do You Good" comes to mind.
Now, you might be wondering– with rising interest rates, and all– why in the world I would think that what's going on in the mortgage industry is doing any buyer any good? After all, the ugly truth is that rates have been (and are still) rising. But, just like how some of the catchy lines in the song make you think about how not all change is bad, there's more happening in 2022 with mortgages than just rising interest rates. And, many of these changes are actually helping more people than ever before be able to get qualified for a home loan.
Here are three examples of changes to home loan programs in 2022 that benefit buyers:
New rules helping buyers qualify for a Conventional loan
For first-time homebuyers looking to qualify for a conventional loan, but wanting to put down a very low down payment of only 3%, it used to be that there were income limitations tied to all these types of conventional loan programs. For example, a first-time homebuyer looking to buy in Osceola County, Florida area, but making more than $64,080 per year, would not qualify for the low down payment of only 3% (OUCH!). However, some of these conventional loan programs got an update to their guidelines, removing income restrictions. That's great news for a lot of borrowers who need a low-down payment option!
Also in the good news department for changes to conventional loans: the conforming loan limit was increased in 2022. Last year, the loan limit for all conventional loans (backed by Fannie Mae or Freddie Mac) was $548,250. If your loan amount exceeded this number, then you had to qualify for a Jumbo loan (and the rates that go along with them). However, in 2022 that limit was increased by $98,950, making the new ceiling on the loan limit for Fannie Mae- and Freddie Mac-backed loans $647,200. That's a change that does a lot of borrowers good, since housing prices in the state of Florida increased quite a bit over a short period of time.
Student loan calculations changed for FHA loans
For borrowers who need an FHA loan, recent rule changes to how student loan debts are calculated and factored into a home loan qualification meant good news. In 2021, if a borrower wanted to buy a home with student loan debt, then rules put forth by HUD said we had to factor 1% of the total balance owed into the borrowers debt-to-income ratio.
For example, let's say a borrower owes student loans from his college education. He's a teacher, and the total balance on his student loan debt is $75,000 (I've actually seen more than this before). One percent of this balance is a debt of $750 that has to be factored into a "monthly obligation." You can see where that could have a big impact on the maximum purchase price one is able to qualify for. With the new rules, however, we can do one of three things:
If the borrower is on a payment plan (i.e., an income-driven repayment plan), and we can document what that monthly payment is, then that is the monthly payment that can be used for qualifying purposes.
Alternately, if a student loan is in forbearance or COVID-related deferment (like most student loans are right now), then currently we only have to factor 0.5% of the total balance owed. That's cutting the previous number in half, which is great news!
Or, according to HUD, "Student loan debt may be excluded from the monthly debt calculation where written documentation from the student loan program, creditor, or student loan servicer indicates that the loan balance has been forgiven, canceled, discharged, or otherwise paid in full. (As an example, some medical workers who work for not-for-profit employers may qualify to have their student loan debts forgiven.)
More loan programs are re-emerging post-COVID
Last, but not least, while rising rates present a challenge to buying a home, one more positive good that has unfolded in the first half of 2022 is that there are a lot of loan programs re-emerging post-COVID. During the height of COVID-19 in 2020 and through most of 2021, many down payment assistance programs for first-time homebuyers, as well as many Jumbo loan options for borrowers needing a home loan above the conforming loan limit, were put under temporary suspension with no guarantees or estimations of if or when they would return. Fast-forward to today, and there are a "plethora" of options for both!
(Remember that funny scene from "The Three Amigos" movie, where the villain El Guapo (Alfonso Arau) and his right-hand man Jefe (Tony Plana) argue about the meaning of the word "plethora"? CLASSIC!)
I'll be talking more about some of these programs in future blogs, so stay tuned! In the meantime, don't hesitate to reach out if you have any questions about qualifying for a home loan or how these recent changes to the rules presiding over home loan programs might benefit you.
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