With the start of 2014 well underway, new mortgage regulations designed to protect borrowers from risky lending practices went into effect, but it may make the first-time homebuyer experience a little more difficult for some borrowers.
There are two core rules that lenders like New American Funding must comply with in order to meet the “back-to-basics” approach of the Consumer Financial Protection Bureau: the Ability to Repay Rule and Qualified Mortgages. Here’s what you need to know about these rules.
Ability to Repay
The Ability to repay rule means that lenders must ensure that borrowers are financially healthy enough to take on a mortgage. Lenders have always looked at things like employment history, credit and debt, but now lenders will have to take a closer look at your debt obligations before you are able to secure a loan.
- Under the new rule, your monthly debt-to-income (DTI) ratio will be one of the the most important aspects of your loan application. So, the amount of money you make each month will be compared to your monthly debts, and your debt cannot exceed 43% of your income.
Fortunately, as a Direct Seller/Servicer to Fannie Mae and Freddie Mac, New American Funding’s clients that take advantage of the FHA and VA Loan programs are subject to a DTI limit of just 43%.
Calculate How Much Home You Can Afford
- To cut down on risky mortgages, all lenders will be required to document and verify income, assets and credit history, which can mean more paperwork and longer processing times. The loan officers at New American Funding can help you collect the information you need to decrease loan processing time.
The Qualified Mortgages rule directs banks to only provide loans to people who can repay them.
While this means that lenders must be careful with who they extend mortgages to, it also means lower fees and upfront costs for buyers. Upfront points and fees during processing and closing cannot exceed 3% of the total loan amount, which gives buyers a better idea of what they can expect before they approach the signing table.
While this means that lenders cannot offer risky items like interest-only or balloon loans, it also means that buyers will know exactly what they are getting when they sign on the dotted line.
What This Means for Buyers
The changes are meant to ensure that lenders do everything they can to protect the health of the housing market, which will ultimately benefit buyers. However, since lenders much pay closer attention to each loan, this can mean increased times to process and evaluate certain mortgage applications.
The new rules may make it more difficult for some buyers and will include more paperwork, especially for new buyers. Luckily, the loan officers at New American Funding are experts in getting you pre-approved for a loan and helping you collect all the information you’ll need to secure a loan. Get in touch with us today.