In response to the mortgage crisis and recent recession, the Dodd-Frank Act was passed to initiate an overhaul of the United States financial regulatory system. One of the main goals of the act was to create stricter requirements to qualify for a home loan. A new mortgage qualifying rule issued by the Consumer Finance Protection Bureau (CFPB) has taken effect on January 10, 2014. Some aspects of the new rule are vague, however, there will be compliance and enforcement of the new rules.
The rulings have to do with Ability to Repay (ATR) and Qualified Mortgage (QM). For a mortgage to be “qualified” there are limits on the type of loan, fees and borrower characteristics. To be qualified, the lender must first determine that buyer has the ability to repay based on a variety of factors including: credit and credit history, income/assets, employment status, monthly housing payment, debts and debt to income ratio. All debts, including alimony payments and child-support payments will be considered in qualifying.
Once qualified, the loan will have to pass a few more tests. The loan cannot be amortized more than 30 years. Points and fees cannot go in excess of 3% of the loan amount. These loans will have no negative amortization nor interest only payments.
As a result of the new qualifying rules, there will be a reduction in applicants who qualify for loans from a government source. These borrowers will then be forced to rely on private capital to fund the loan. The consequence will be higher rates for a higher risk borrower. Suddenly, the borrower now will qualify for less of a purchase price.
If you are considering buying a home this year, the sooner the better as rates are likely to climb later this year as implementation begins to enforce these rules. With stricter qualifying guidelines and increased rates this could mean that if you qualify for a $200,000 house now, you may only qualify for a $160,000 house later this year.
For your best buying choices, NOW is the time to buy. Call/text me for a consultation to review your home buying options. 614-565-8161 or Teresa@TeresaButler.com