There’s a new Sheriff in town, well actually it’s new rules for mortgages and lenders and they will affect how you are able to get a home loan.
All lending institutions from huge national banks to community banks to credit unions will now have to follow the new rules. Essentially, everywhere you get a loan and will taking effect as soon as January 21st of THIS year, but lenders will have a full 12 months to implement the new rules fully.
HINT: You may want to start your loan process SOONER than later.
New loans will have to fall into the following “qualified mortgage” criteria:
- Income and assets must be sufficient to repay the loan;
- Borrowers must document their jobs;
- Credit scores must meet minimum standards;
- Monthly payments must be affordable;
- Borrowers must be able to afford other debts associated with the property such as home equity loans;
- Borrowers must be able to afford all home-related expenses such as property taxes; and
- Lenders must consider a borrower's other obligations like student loans, car loans and credit cards.
If borrowers don’t meet all the guidelines outlined above, they still can get a mortgage if the monthly payments don’t exceed 43% of the pre-tax income of the borrower.
So, what make the new rules so beneficial to borrowers?
Lenders cannot base payments on negative-amortization rates or interest only loans where the mortgage balances increase over time.
Lenders can’t use teaser rates in which interest rates adjust higher after a set term; terms of loans are not to exceed 30 years and lenders can’t request borrowers to pay excessive up-front fees like points to reduce the rate of interest.
No doc or low doc loans will be prohibited.
According to Forbes, “Now that the details have been firmed up, it looks like the final product might actually help ease that “overly tight” lending environment — in the private loan industry at least.
In other words, the new definition may provide the legal framework needed for private lenders to more confidently service mortgages in a post-housing bubble industry that has largely been dominated by Fannie Mae, Freddie Mac and government agencies like the Federal Housing Administration.”
These new rules do not eliminate unconventional lending, but the borrowers’ ability to repay will have to be taken into consideration as if it were a conventional loan.
Jumbo loan lenders will be expected to follow the new rules as well.
The only loans which may be exempt from the new rules are to borrowers who are refinancing subprime ARMS or other risky loans. Apparently according to the new rules, they can do so without the full underwriting process.
However, loans in the San Francisco area may be impacted more by the new rules than in other areas, according to Mercury News, "The Bay Area, where housing prices are among the nation's highest, may feel the impact of one key guideline that limits the size of the loan payment compared with the person's monthly income and other debt. That will make getting a mortgage harder for some potential homebuyers." According to the report, "We do have a more expensive market, so for those people who are prevented from really stretching themselves, it will have an impact," said Chris Thornberg of Beacon Economics."
Call us today at (650) 434-2289 if you want more information or how this may affect your home ownership.