Getting Approved For A Mortgage Is About To Get Harder

For the second time in less than 3 months, Fannie Mae announced changes to its mortgage guidelines.

The updates are meant to reduce the mortgage firm's overall risk.

The first major change is with respect to credit scoring. All Fannie Mae loans -- whether underwritten electronically or manually -- require a 620 credit score minimum. There are very few exceptions.

A second change relates to loans with private mortgage insurance. Homeowners whose loan-to-value exceeds 80 percent now have a choice:

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

Both options pass higher costs to consumers.Then, a third change relates to maximum debt-to-income ratio. As announced, Fannie Mae will no longer approve expense ratios exceeding 45 percent except with very strong assets and credit to back it up. In no case can expense ratios exceed 50 percent.

There are other changes, too, including the elimination of seldom-used mortgage products and new risk-based pricing on "expanded level" approvals.

Fannie Mae implements its updates during the weekend of December 12.

So, if you're going to need (or want) a new mortgage later this year, consider moving up your timeframe to October or November. Once the guidelines change, getting approved for a mortgage is going to be tougher.