Automated Underwriting has given our clients the ability to push their buying power over standardized debt-to-income guidelines. Debt-to-income ratios represent the ability for a borrower to repay a debt by dividing their monthly debt by their monthly income. While industry standard ratios are 36% to 41%, lenders have been accepting ratios in excess of 55% with an Automated Underwriting Approval. The new changes to the Automated Underwriting system will reduce the maximum debt-to-income ratio to 45%. There are some provisions allowing ratios up to 50% with compensating factors (i.e. great credit, a large amount of savings and/or a large down payment).

So you’re thinking, “Yeah, so what, what does this have to do with me?” If you are buying at the top of your qualification this could end up hitting you hard! If you currently are approved to buy a home for $200,000, this could reduce your buying power to $160,000. WOW! It is definitely hard to get fired up about finding a home that’s $40,000 less than you have been looking at purchasing.

“So what should I do”, you ask? If your pre-approval amount is decreasing, you either need to close escrow before December 12th at the higher amount or accept looking for a home with a lower sales price range from there on.