Fannie Mae Easing DTI Standards Impacts Your Ability To Get a Mortgage

Gentle Readers,
Remember when I learned that FHA guidance would make it much harder for me to get a mortgage any time soon? Things are changing, potentially.
Fannie Mae is changing their debt-to-income (DTI) formula. This will allow some folks to qualify for a mortgage who could not under the old standards.  The old DTI maximum was 45%, but at the end of July, it will be 50%.

What is the DTI Formula?

The DTI is simple to calculate. All of your debts go on the left of the colon and your income goes on the right. Then divide your debt by your income and multiple by 100.  That is your DTI percentage.
  • If I make $4000 a month, and have debt obligations of $2000, I have a DTI of 50% and am just barely eligible.  2000:4000  (2000/4000)100=50%
  • If I make $4000 a month, and have debt obligations of $1800, I have a DTI of 45% and am eligible.  (1800/4000)100=45%
This applicable DTI seems to be for Fannie Mae mortgages and not Freddie Mac or Federal Housing Administration mortgages. Their standards may or may not change to fall in line.

What does this DTI standard mean for me?

I’m not sure that this is a good move. The more debt you have relative to your income, the harder it is to pay for everything you need. This is true even without emergencies cropping up. Perhaps if the rent in your market is outrageous in comparison to your potential mortgage + insurance + maintenance, then this could be a boon for you.


This change still seems risky. Everything in the US market seems frothy right now. Real estate and other investment prices do not seem to correspond to the underlying asset values in a lot of markets. It does not seem like now should be the time for loosening our standards. Just because you can receive a mortgage, that does not mean it is financially responsible.


The next thing I need to research on my quest to own a condo is the Fannie Mae Homepath program.


What do you think of the new DTI requirement? Good for the market or for individuals? 

Author: ZJ Thorne

Lesbian on the path to Financial Freedom

  • Emily Nance Jividen

    I read an article last week that talked about the mortgage crisis being more about everyone being overextended with subprime loans rather than just poorer folks being overextended. This, combined with the lower reserve limits and higher interest rates that are being discussed seems like a recipe for “The Big Short” all over again.

    • It is alarming. How can half of your pay go to debt and a mortgage provider look at you to conclude that you need more debt.

      I also think housing is overpriced. I think many folks will be underwater soon.

  • We can definitely see where this may change the playing field a bit when it comes to obtaining a mortgage. But for what it’s worth, we purchased a mortgage while we were knee deep in debt and we don’t recommend it. In hindsight, we now realize that we probably should of held off on buying the house until all of our other debts were paid off to make things easier. Honestly, we don’t think one should be buying a house if the 5% difference in DTI is an issue. But regardless, we understand the difficulties it may present nonetheless.

    • 5% is definitely not a terribly big difference. I’m more worried about the loosening of standards.

      I won’t be debt free by any stretch when I buy a property. I’m working hard on increasing my income to fix this.

  • Real estate values are at their highest point ever, but mortgage delinquencies are very close to all time lows. Even with a Median down payment of Just 5%, mortgages are making the banks a ton of money. My guess? The change in DTI standards won’t bring down the housing market anytime soon. But that doesn’t mean it’s a great idea to get a mortgage right now. I think it’s very wise to keep fixed costs as low as humanly possible. That way emergencies, savings, and the luxuries you want to enjoy are all more affordable.

    • Delinquencies are currently very low, but there is no guarantee that this will stay. Everything just looks so out of whack right now. If folks start losing jobs… (I’m a naysayer, I know)

    • (Apparently my reply was eaten) I’m with you on keeping fixed costs low. I don’t think this change will destroy the market, but I do worry at things trending towards too much ease of access to money.

  • Jeffersonx

    If you think housing is overpriced, buying when you have a negative net worth is a bad idea IMHO. If the market for housing turns bad, your net worth could go from bad to terrible. My advice is to pay off ALL of your debt, save for a large downpayment. If you are lucky, housing will be in a down cycle at that time. Money in real estate is made on the buy.