New mortgage guidelines will be enacted on January 10, 2014. The new rules are meant to avoid the types of borrowers and loans that led to tumbling property values and millions of foreclosures during the recession. It is also meant to protect investors, namely Fannie Mae and Freddie Mac, from getting burned by purchasing inferior loans. While this is great for the market overall, it may stop some from buying the home of their dreams during its inception.
Among the new rules is the obligation of a mortgage originator to consider the borrower’s ability to repay the loan. It seems like an obvious aspect to take into consideration, but there were many loopholes to this in the past: specifically, those lovely adjustable rate loans that allowed borrowers to qualify for larger-than-their-lives loans by only requiring them to prove the ability to make a payment that was a fraction of what their monthly mortgage payment would eventually become. Those mysterious “no doc” loans – essentially pinky promises that borrowers made enough to make mortgage payments – also fall into this category.
Among other things, mortgage originators now have to take into consideration:
Income and assets
Proposed monthly mortgage payment
Monthly payments on other debts and obligations (including alimony, child supports, etc.)
Mortgage insurance, home insurance, property taxes
The Qualified Mortgage Rule defines a category of loans that are safest for consumers. These will be most affordable and cannot contain certain features that often have harmed consumers in the past, such as excess points and fees. These “qualified” mortgages do not include risky loans like interest-only mortgages and negative amortization mortgages.
The good news is that these changes will not make much difference for the truly qualified borrowers. Those who have stable income, high-quality credit history and do not want to buy more that they can afford will escape unscathed. It is those who have job-jumped, are self-employed or (for any reason) haven’t filed recent tax returns who may have a more difficult time qualifying.
Many lenders are already adhering to the new guidelines, but if you believe you that your loan application is anything less than stellar, it may be beneficial to apply sooner rather than later. Call us at (888) 634-4260 for a no obligation, no pressure evaluation of your eligibility!