If you are considering home ownership or refinancing, you can expect to see stiffer mortgage lending rules come January 10, 2014. The Consumer Financial Protection Bureau (CFPB); an independent federal agency put in place after the housing crisis and recession of 2008, has developed a more stringent regulatory reform to keep people more financially responsible.
The CFPB will require lenders to offer a qualified mortgage, aka a “safe” mortgage to potential borrowers. So, let’s start there. What exactly is a qualified mortgage? A qualified mortgage came about as a result of the Dodd-Frank Act; you must be “qualified” to pay back a loan or have “the ability to pay” based on standards and rules set forth by the CFPB.
The one main objective is to eliminate various loan types that cloud the waters in the home lending market. You will no longer see loans such as interest-only, balloon mortgages, or no-documentation loans, currently offered by most lenders.
So, what can you expect?
In accordance with the Dodd-Frank Act, a lender is mandated to follow the Ability-to-Repay rule, and when this is acceptable, they can then offer loans only if the qualifications are met under the new standard.
One of the qualifications will be how secure your job is based on your employment history. How many times you’ve changed jobs and the length of time you’ve stayed with each will be looked over carefully, as well as pay stubs and tax documentation.
The 43% Threshold Rule will convey one strong message to the borrower; little or no debt. The new lending rules will prohibit a household from borrowing more than 43% of their gross income. This debt-to-income ratio includes any forms of debt such as student loans, property taxes, credit cards, car leases, and the fees and points involved in purchasing a home.
Overall, the goal of these new standards is to protect the consumer from experiencing another financial crisis and to help to keep them financially responsible.
If you’re one of the many people who hope to make their dreams of home ownership come true in 2014, it’s helpful to know what changes are coming so you can start preparing.
My name is June Seebohm and I am an experienced Realtor serving the Hilton Head Island and Bluffton, SC area’s. I am happy to help you in any way that I can in regards to learning about our beautiful area, as well as your real estate needs or questions! Please don’t hesitate to contact me via email: firstname.lastname@example.org or call 843-290-2929. I also have a Facebook Page where I post updates about the Hilton Head Island area, home ownership, and helpful information for both buyers and sellers. Whether you are a vacationer, resident, buyer, seller, or current home owner/renter interested in the Hilton Head area, this is a blog you’ll want to follow!