Today, people seeking home loans backed by Fannie Mae and Freddie Mac can benefit from a temporary “patch” that allows them to borrow above a 43% DTI (debt-to-income ratio) and still be under the definition of a Qualified Mortgage (QM).
According to the Urban Institute, the GSE Patch has made 3.3 million loans possible - about 19% of GSE (government sponsored enterprise) loans - from 2014 through 2018.
Also known as the “QM patch”, this special allowance is set to expire on January 10, 2021 and the Consumer Financial Protection Bureau is not planning to extend the provision further.
In 2021, buyers who aspire for homeownership yet have a higher percentage of debt may be limited to government-backed programs with a permanent DTI exemption – like FHA, VA and USDA. Some buyers could qualify for non-QM loans, however those loans typically have higher rates and additional requirements to offset the investor’s risk. For others, looking at lower-priced homes or coming up with a bigger down payment may be their best options.
The potential expiration of the GSE patch in 2021 will limit the home financing choices and could be an important consideration for those thinking about buying a home in the next few years.