Mortgage financier Fannie Mae announced several changes last week that will make it more difficult for borrowers to take out interest-only loans and adjustable-rate mortgages.
Beginning in July, the qualifying rate on adjustable-rate mortgages with an initial fixed-rate period of five years of less will be the greater of the note rate plus 2%, or the fully indexed rate.
Essentially, borrowers won’t be able to use the interest-only rate they actually pay as the qualifying rate, making it more difficult to meet debt-to-income ratio requirements.
“With these changes, Fannie Mae has structured the interest-only option for borrowers who are in a position to choose it as a financial management tool, rather than as an affordability tool,” the company said in a lender letter.
“Borrower qualification is based on the borrower’s ability to sustain mortgage payments subsequent to the initial interest-only period.”
When home prices were at their peak, an interest-only option was a necessity for many to simply get in the door…