This Change From Fannie Mae Could Help You With a Mortgage You Can’t Afford

Published

August 13, 2018

Scott Sheldon is a senior loan officer and consumer advocate in Santa Rosa, California. His work has appeared in Yahoo! Homes, CNN Money, MarketWatch and The Wall Street Journal. Connect with him at Sonoma County Mortgages.

A restructured mortgage is a mortgage loan that had some material change to the loan amount, rate, payment or term that benefits the borrower. Some examples include an adjustable-rate mortgage being converted to a fixed-rate mortgage or the terms of a payment being stretched from 360 months to 480. (You can learn more about the difference between adjustable- and fixed-rate mortgages here.)

Recently, Fannie Mae changed their policy regarding restructured loans. Here’s what that means for consumers.

A New Approach

In the past, if you had a mortgage that was modified in the last 12 months, in order to qualify for a new conventional mortgage loan you would need to pay at least 24 months as agreed upon — or 12 months from the date of the original loan restructuring if you were trying to finance another property.

These requirements took precedence over a down payment, debt-to-income ratio and even a credit score and were put in place by Fannie Mae for restructured mortgages dating back to 2008.

Under the new rules, if you have a restructured loan in your past, you will no longer be precluded from qualifying. (Just note that these changes are for conventional mortgage loans only.) Most other programs, including Federal Housing Administration (FHA) and jumbo loans, mirror conventional underwriting, though, and could follow suit and change their policies on restructured mortgages.

Currently, two things are working in your favor to finance your mortgage: super-low interest rates brought on by Brexit and a chance to get out of the short-term restructured loan you may have taken out for payment relief during the financial crisis. If you no longer have a restructured loan in your name, don’t worry, the limiting policy is a thing of the past.

As with applying for any home loan, you’ll still need to be able to show a healthy credit score, stable income, a low debt-to-income ratio and, of course, equity, in order to qualify. If you’re considering taking out a loan but haven’t check your credit, you may want to read this primer on why it’s important to check your scores now. You can view two of your scores, updated every 14 days, for free on Credit.com.