Lenders getting more flexible on key mortgage qualifications

Fannie Mae's recent survey of mortgage lenders found they have eased up on certain key requirements, making it simpler for first-time buyers and others who can't pass all the strict tests to get approved.

In recent months, standards on debttoincome ratios, minimum down payments and student loan debt have been made less stringent. Both Fannie Mae and fellow mega- investor Freddie Mac have taken steps to accommodate a wider swath of homebuyers.

Debt-to-income changes are at the top of the list. Under previous rules, your total monthly debt load could not exceed 45 percent of your monthly household gross income. Under the new rules, your total monthly debt can go to 50 percent.

The net effect is huge, said Paul Skeens, president of Colonial Mortgage Group in Waldorf, Maryland. "It makes it much easier for a lot more people to qualify." Often they're younger buyers starting new households along with heavy student debt.

Fannie Mae's recent change in how it handles student loans is another big deal. Previously, lenders had to use 1 percent of the student loan balance in applicants' monthly debt calculation. Now, if mortgage applicants have income-based reduced-repayment plans and their artificially low payment is listed on their credit reports, lenders can use that figure.

Down-payment minimums also have been slashed, with many lenders requiring just 3 percent down on conventional mortgages. A handful of lenders are offering 1 percent or zero-down conventional loan options for certain borrowers, typically those with solid credit histories. One large Midwestern bank made a splash last month with a zero-down mortgage plan that also includes a gift of up to $3,500 toward closing costs.

The takeaway: Standards are not necessarily as strict and exclusive as people may assume.