2017 Mortgage Updates: Expert Insights on Amounts and Requirements
7 minute read
January 20, 2017


2017 has ushered in some changes with both mortgage amounts and loan requirements. Actually, some of these changes took place during 2016, but 2017 will be the first year in which they will represent new parameters for the entire year.

New Mortgage Amounts for 2017

New mortgage amounts have become effective as of January 1, 2017, and are detailed in the charts below. They represent the first change in the base mortgage loan amount since 2016 when that amount was set at $417,000. Due to increases in property values since 2006, the base amount for a mortgage loan has increased to $424,100 for a single-family home in most locations.

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The charts below show the new maximum mortgages for both conventional and FHA mortgages for 2017, though the maximum loans in high-cost areas are lower than those shown below for FHA mortgages.

Maximum Original Principal Balance for 2017

Maximum Original Principal Balance for 2017

Maximum Loan Limits for High-Cost Areas for Mortgages Acquired in Calendar Year 2017

Maximum Loan Limits for High-Cost Areas

(Source: Fannie Mae )

New Bankruptcy Rules for Conventional and FHA Mortgages

Several changes in underwriting guidelines have also taken place during 2016 that will affect mortgages in 2017. One of them is the consideration for applicants who have recent bankruptcies. Under the previous underwriting guidelines, you had to be out of bankruptcy for at least four years to be eligible for a mortgage.

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Conventional mortgages are now matching FHA mortgages in reducing the waiting period after bankruptcy down to two years. In fact, FHA mortgages can be applied for after just one year out of bankruptcy under FHA’s Back to Work program.

Of course, it’s not as easy as just waiting one or two years after a bankruptcy to apply for either a conventional or FHA mortgage. You must also demonstrate and document extenuating circumstances as the reason for your bankruptcy. We’ll cover specifically what that requires a little further down in this article.

There’s one consideration to be aware of regarding the relaxed bankruptcy requirements. Even though the waiting period for bankruptcy has been cut in half for both conventional and FHA mortgages, the bankruptcy filing will continue to weigh down your credit score.

A bankruptcy filing can drop a credit score by well over 100 points. A recently filed bankruptcy, certainly one not much more than two years old, will continue to have a negative effect on your score. It is, therefore, imperative that your credit is squeaky clean since the bankruptcy filing, to be sure that there is no other derogatory credit information weighing down on your score.

New Foreclosure Rules for Conventional and FHA Mortgages

Similar changes have taken place regarding other significant derogatory events, particularly foreclosures. The waiting period has been reduced to two years on these as well, but also for short sales, a deed-in-lieu of foreclosure, or a mortgage loan charge-off.

But as is the case with bankruptcy, the reason for the foreclosure, short sale, deed-in-lieu of foreclosure, or mortgage loan charge-off must be an extenuating circumstance.

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Also, foreclosures and other mortgage-related events will, like bankruptcy, drop your credit score significantly, which can impair your ability to get a mortgage, even though the waiting periods have been reduced. Once again, it is absolutely essential that you have no other bad credit entries since the time that the foreclosure or other mortgage event took place.

The Extenuating Circumstances Requirement

The reduced waiting period is not an automatic “get-out-of-jail-free card” for bankruptcy, foreclosure, or other mortgage-related events. For example, if a bankruptcy occurred primarily because you spent more than you earned, or a foreclosure was the result of strategic default (walking away from a property that was no longer financially profitable to maintain), the event will still prevent you from obtaining a new mortgage.

Lenders will require that you prove that the event was caused by extenuating circumstances, which are basically circumstances that were beyond your control, and resulted in either a sudden, large reduction in income or a significant increase in expenses.

Examples might include the failure of a business or the loss of a job, followed by an extended period of unemployment. It could also be the onset of a major illness, that resulted in either the loss of income or a catastrophic increase in expenses. Divorce might also be an acceptable explanation.

Whatever the reason, you will need to provide a written explanation of the event and provide documentation to back up your claim. This can include a copy of your divorce decree, medical bills, or evidence of either a job loss or a business failure.

Whatever the cause of the event, you will also have to be prepared to explain that it was a one-time event, that isn’t likely to occur again in the future. Obviously, if you have a history of more than one short sale or deed-in-lieu, the lender is unlikely to accept your assurances, resulting in a loan decline.

Relaxed FHA Credit Score Requirements

There’s good news on credit scores, at least with FHA mortgages. FHA now has a two-tiered credit score arrangement that will enable you to get a mortgage even with a very low score.

The FHA credit score minimum requirement is 580 if you are taking maximum financing. That’s a loan with a downpayment of 3.5% of the purchase price. But if your credit score is lower than 580 you can still get a mortgage, as long as you make a down payment equal to at least 10% of the purchase price.

There is one caveat on the lower scores, however. Though FHA will permit credit scores this low, not all lenders will accept them. Out of fear of high loan default rates, lenders may require higher credit scores on FHA loans. You will have to be selective with lenders if your credit scores are in this range.

FHA Changes on Debt Consideration

Though FHA has relaxed the guidelines for bankruptcy, foreclosures and credit scores, they’ve tightened up a bit in regard to certain debts.

Student Loans. Previously, FHA would ignore student loan debt payments if your loan was deferred for at least 12 months. But now all student loans must be considered in your debt-to-income ratio (DTI). Even if the loan is in deferment and no formal monthly payment has been established, the lender must impute a payment equal to 2% of the loan balance, and include it in your DTI.

Credit Cards. It used to be that if you were only an authorized user on a credit card that the monthly debt wouldn’t be counted against you. Now the payment on the card must be included unless you can prove that the primary owner of the credit card has made all of the payments for the past 12 months. You will need copies of canceled checks from the primary user to prove it.

Installment Loans, including Car Loans. FHA used to not count installment loans in your DTI if there were 10 or fewer payments remaining on the loan. The new guidelines require that they are at least partially included. The amount of the payment that exceeds 5% of your monthly income must be included in your DTI. For example, if you have a $350 car loan with eight months remaining, and you earn $4,000 per month, $150 of the car loan will count against your DTI ($350 – ($4,000 X 5%)).

The changes for 2017 are mostly positive for homebuyers. But there are a few negative changes, that will require that you use some different strategies to work with.

Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.

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