Starting in January 2014, the CFPB (Consumer Finance Protection Bureau) says mortgage lenders must implement new rules regarding “Qualified Mortgages) and the “Ability to Repay”. These rules are meant to protect homebuyers and effectively will also protect lenders by giving additional guidance on mortgage loan fees and costs and underwriting.
What does a REALTOR need to know? What does a homebuyer need to know? Well in very general terms, the new rules may cause underwriting to be more strict than it had been. But in many cases the underwriting hasn’t changed at all. In some cases the new rules have actually resulted in the underwriting of some products to become more lenient. There is a lot of talk about the new “ability to repay” and underwriting standard of a maximum total debt ratio of 43%. This means that the borrowers’ gross monthly income X 43% is the maximum they can get for housing & other debt (car loans, student loans, other loans, minimum payments on credit cards, monthly child support & alimony payments). This rule does not apply broadly across the board and in some cases, loans can still be approved with total debt ratios as high as 55%. The ability to repay rules reinforce basic underwriting standards that have been in place already with many reputable mortgage companies and lenders. So what do REALTORs and homebuyers need to know? They need to know that the best course of action is for individuals considering a home purchase to prequalify or preapprove for a mortgage before they make an offer to purchase a home.
If you are considering a home purchase, we would be happy to assist you in determining what you qualify for and what your best options are. Pick up the phone and call 225-LOAN.