“Qualified Mortgages” in 2014 will prove to be one if not the biggest change in recent years for the Mortgage industry. QM’s were created as part of the Dodd Frank Reform Act. Truth be told, banks and Mortgage companies traditionally have taken a much more relaxed approach to underwriting loans. A “Qualified mortgage” represents the borrower’s ability to repay the mortgage debt with an overall “Debt to Income” ratio not to exceed 43%. Underwriters will take many more steps to verify documentation to make a reasonable assessment of whether a borrower can afford to repay the loan or not. It is much more of a common sense approach to underwriting loans, but it adds many new layers to obtaining the loan. The aim from the government is to make this a positive addition to the Mortgage industry. Conversely this could have a negative effect on the quality of service and access to credit depending on how it comes out, because it will restrict how much, and the manner in which loan officers and mortgage brokers can be compensated.
Loans will be put through many tests, such as the “High Priced Loan Test” where the banks will evaluate whether the consumer is paying too high of a percentage in overall fees. If the loan is deemed a “High Priced Mortgage loan” the max a consumer can be charged counting (points and fees) is 3%. There are disadvantages in this rule as indicated above; most of the time when a consumer pays points on a loan it is to obtain a lower interest rate. This is commonly referred to as “buying down” the interest rate. The aim of QM’s is to keep consumers from being possibly “overcharged” by Mortgage banks. Many mortgage originators, including big bank institutions charge their compensation to the borrower upfront. At Sierra Pacific Mortgage we receive our compensation from the bank directly. We don’t want to originate loans where our clients spend money out of their pocket to pay for our compensation. We believe this sets us apart from the rest of the competition.
Now more ever we believe our clients need to be with a seasoned and licensed Mortgage professional to successfully navigate through what loan options are available to them. Not only is it important to know all of your loan options, but it is crucial to your pocketbook to know whether your loan transaction will qualify as a “Qualified Mortgage” in the banks and governments eyes. Please call us today to discuss a pre-approval for financing if you are in the market to buy. We also have an upcoming Homebuyers Workshop where we will answer questions about Qualified Mortgages and buying a home in Sacramento.
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