You may have heard about new mortgage lending rules which became effective earlier this month. But how will this change impact Y-O-U?
Bottom line, be prepared to show more information to confirm you CAN AFFORD a new mortgage.
Our guest post is from Tamie Platts, Certified Mortgage Planning Specialists (“CMPS®”) and Senior Mortgage Loan Originator with ‘The Craig Bland Team’ at Southeast Mortgage. As a CMPS®, Tamie takes time to understand your financial situation and works with you on a strategy to acquire your largest asset. To learn more about the benefits of working with a CMPS® click here. Tamie’s bio and contact information is at the end of this post.
The New Qualified Mortgage Rules by Tamie Platts, CMPS®
New mortgage lending rules went into place Friday, January 10, that the federal regulators say will guard against the risky lending practices that fed the housing bubble. For most home loan borrowers, the change will have little or no impact on whether they can actually get a mortgage, but they may have to show even more proof that they can afford the loan. Here’s a quick look at the new rules:
Ability to Repay: Part of the 2010 Dodd-Frank financial overhaul legislation, requires Mortgage lenders to make sure borrowers can actually afford their loans over the long term. Lenders must weigh the Buyer’s income, assets, savings and debt against their monthly house payments. If a buyer meets all guidelines, they will be getting a “Qualified Mortgage”. Why is this important? This protects the lender against futures lawsuits should the loans go sour later.
Qualified Mortgage loan cannot:
Have risky features, such as terms over 30 years, interest-only payments or payments that are less than the full amount of interest, thus allowing the loan debt to grow each month.
Carry more than 3% in upfront points and fees for loans over $100,000.
Push a borrower’s total debt load above 43% of his or her monthly income, unless the loan is eligible to be backed by Fannie Mae or Freddie Mac, or a federal housing agency such as the FHA, or is made by a small lender that will keep the loan on its own books.
Can Lenders make loans outside those guidelines?
Yes, but they still have to make sure borrowers can afford the loans and they will have less protection against future legal challenges if the borrower fails to pay-even if they have sold the loan to another lender.
Will this make it harder for some people to get a loan?
That’s not clear. Borrowers above the 43% debt-to-income level will have more documentation hurdles. That’s because lenders have to be able to prove that they exercised extreme due diligence in making such loans. Borrowers should expect to have to produce even more tax records, pay stubs and bank and investment account information. The 43% standard may also prevent some borrower from qualifying for the loan or require them to have a bigger down payment to stay within the 43% standard debt-to-income.
What is the downside to these changes?
Critics say the minimum down payment requirements would be a good thing. Goldman Sachs’ analysis showed that eliminating loans with risky features would have prevented 59% of the defaults that occurred in loans issued in 2007, but would also have prevented 30% of the loans that did not default!
About Our Guest:
Tamie Platts, CMPS®
(770) 279-0222 ext. 366
As a Senior Loan Officer with 10 years experience and a Certified Mortgage Planning Specialist since February 2006, my goal is to help people achieve their goal of home ownership while integrating their mortgage into a financial plan. Whether you are buying your first home, vacation home or an investment property the structure of your loan is an important part of your overall financial success. My experience and advanced training as a CMPS® provides my clients with advanced insight into their best mortgage options.
Did you know that less than 2% of the mortgage lenders and brokers in the U.S. are CMPS® certified? By working with a CMPS® professional in you will have the opportunity of working with the “cream of the crop” among all the mortgage professionals in the country!