New Mortgage Rules Going Into Effect in January

Filed under: Market Comentary

new mortgage rulesIn case you didn’t know, there are some new mortgage rules that will go into effect on January 1, 2014. These “new” mortgage rules, according to Tim Grant of the Pittsburgh Post-Gazette, are meant to avoid a repeat of the housing and credit crisis that almost brought the economy down five years ago.

The new regulations, however, could also have the unintended effect of making it more difficult for many “working-class” families to actually qualify for mortgage loans offered by major banks.

These new rules apply to Fannie Mae and Freddie Mac loans, which make up a majority of mortgages.

Grant explains that financial institutions in the business of originating mortgages that they plan to resell on the secondary market to government-sponsored mortgage buyers, such as Fannie Mae and Freddie Mac, will have to raise their standards for approving loans. This will most likely have the biggest impact on those working-class families who may be struggling with consumer debt and possibly living paycheck to paycheck.

Two of the most important new mortgage rules, which were created by the Consumer Financial Protection Bureau, focus on the Ability-to-Repay rule and the 3% test rule.

Known as the Qualified Mortgage rule, the Ability-to-Repay rule, states that the borrowers’ total debt liability, including housing, should not exceed 43% of the borrower’s income. A Qualified Mortgage is a mortgage that would be qualified for resale on the secondary mortgage market.

The 3% test rule states that 3% of the mortgage amount is the “maximum” amount of fees that banks can charge a borrower in order for the home to classified as a Qualified Mortgage.

In addition, according to writer Stacy Johnson, lenders will be looking more closely at a borrower’s financial information to determine your ability to repay that loan. Johnson states that borrowers are going to have to prove that they can afford the home they want to purchase. She adds that these new rules could possibly make it more difficult for people who have irregular income or are self-employed.

Johnson also writes that beginning in January, lenders will have to check eight different things to make sure a borrower can repay the loan, including w-2s, debts, and employment history.

Changes such as this make it all the more important to make sure you are working with an experienced loan officer who keeps up to date on guideline changes.  If you are seriously thinking about buying a home, it might be a good idea to do it before the end of the year. In any case, feel free to give me a call and I can go over all of the details you need to know.


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