Posted March 1st, 2014
Since January 10, 2014, there are new mortgage rules that can able to protect investors and homeowners from those risky mortgages that have resulted in the foreclosure of many people so far. The new rules were prepared by the Consumer Financial Protection Bureau. While the home market became a safer place with the help of the new rules, there is a downside too – it is harder for buyers to get a home loan.
Better Borrowers
The Ability to Repay Rule makes lenders to check whether you will be able to repay the loan, no matter if it is a fixed-rate loan or an adjustable-rate mortgage. The time of the so-called ‘exploding’ adjustable-rate mortgage is gone and so is that of the ‘no doc’ mortgages. The first of them was the reason why many people lost their homes because they were able to afford the payments in the first years until the interest rates went up, while ‘no doc’ meant that you can borrow without showing proof of your financial condition.
Now, however, there are strict points that are followed when lenders evaluate your ability to pay:
– Your employment;
– The income or assets you have;
– The monthly payment of the mortgage you are applying for;
– Other debts you may have and their monthly payments;
– Other mortgage-related monthly payments /mortgage and home insurance, property tax, etc./
– Child support or alimony expenses;
– What do you remain with every month after you pay all your debts – they can’t be more than 43% of your gross income.
– Your credit history.
Safer Mortgages
It may be harder to get a mortgage now but you are also getting safer mortgages – thanks to the Qualified Mortgage Rule. They are quite affordable and lack all those features that resulted in people losing their homes in the past – excess points and fees for example. So now there will be no more interest-only mortgages with which you did not get the ownership of the home even after decades of paying, and the negative amortization mortgages are gone for good, too. According to the Federal Housing Finance Agency, the new rules go for Fannie Mae and Freddie Mac, too, as they are the source of about 70% of the new mortgages.
The Overall Results
It will be easier for you to get a home loan if you have a steady work history and consistent W-2 tax forms. The more you have changed or lost your job and have been self-employed, the worst to get your mortgage application approved, according to David Stevens, president of Mortgage Bankers Association.
It appears that the advantage is now for the wealthier borrowers who can show a lot of investments and savings. They will be able to qualify for certain loan prices and options that are not available to everyone. According to Stevenson, a credit score of 750 will now be able to provide you with a lower-cost conventional mortgage that has a small down payment. If you have negative points in your application, this will probably mean 20% or more down payment.
In other words, lower-income borrowers will find it hard to apply for a loan as they will be unable to pay these 20% or more. Unless they don’t find a consistent and well-paid employment, they will have to depend on other household members that will make the whole process of taking a loan quite complicated.