Effects of New Mortgage Rules
by Veronica Barfield
If you are planning to purchase a house in 2014 or you are looking to refinance your current house, you’ll be shocked to be one of the first persons to apply for a mortgage because of the new rules made by the Consumer Financial Protection Bureau.
The new rules are made to protect consumers from the unendurable loans and to prevent lenders from approving loans even from those unqualified borrowers. It is also named QM (Qualified Mortgages) regulations. In effect of the housing and financial crisis all over the globe, the rules affect the availability of a few loan programs and restrict the charges that lenders can give to their consumers.
From Quality Mortgages to Mortgage Lending
There are a few loan programs (alarming to consumers, according to the CFPB) that are very not acceptable for Quality Mortgage status, like for example, those loans that have no documentations, grows up to 40 years, with interest only, balloon payment, negative amortization, etc.
Consumers won’t even feel the difference if these loan programs are gone because most lenders have already stopped offering these programs years ago due to the housing crisis. Furthermore, lenders over the past years increased the requirement of documents for all borrowers since this is in accordance with the underwriting standards and strict regulations.
Consumers will be greatly affected by two more conditions of the Quality Mortgage loan:
1. The debt-to-income ratio has a very hard line and lender fees are narrowed down to a 3 percent value.
2. The lenders fees’ limit is applicable for loans reaching $100,000 and above and will cut down on the up-front mortgage cost.
In the Quality Mortgage rules, your gross monthly income compared to the payments of all your debts (called debt-to-income ratio) should not exceed 43 percent. This may be tough for some borrowers since they can no longer be qualified for the loan under these new rules. They will be forced to lower down the loan amount, or they have a choice to pay off other debts first.
Lenders can choose to provide QM and non-QM loans as long as they certify that the borrowers can pay back the mortgage. One good thing about QM loans is that it can be bought or approved by Freddie Mac and Fannie Mae. The lender gets legal protection for the QM in cases where a dispute comes to borrowers or investors.
Quality Mortgage Impact
The impact of the Quality Mortgage rules can be easily seen. The more strict the rules are, the more the borrowers are hold to stay on the margin due to the limit lender flexibility.
Quality Mortgages prohibit lenders to easily approve loan. If your budget in purchasing a house is stretched because in the future, you may be having a promotion, or you are about to graduate in law school, or your debt can almost be paid due to a bonus, due to the QM, it is not possible anymore. Your previous employer may have approved these circumstances in the past but not today.
Veronica Barfield is active in reading manuscripts that deals with real estate financing. People might think that she is a broad minded woman with interest on highly sophisticated scripts of laws, but she is indeed a nature enthusiast, a passionate woman who would rather go for a nature hopping than grandeur social gatherings.