New Mortgage Rules for 2014, What you Need to Know

By
Real Estate Agent with RE/MAX Executive

January presented us with major changes to mortgage lending rules. These new guidelines aim to curb some of the excesses that occurred during the sub-prime years—hopefully resulting in a lower risk of default and foreclosure by borrowers and a healthier real estate climate for everyone.
QM: “Qualified Mortgage”
This all came about as one offshoot of the Dodd-Frank legislation that went into effect in 2014. It creates a new category, “Qualified Mortgage.” Lending institutions are required to document each loan they deem to be a QM; when they do, they benefit by being able to sell them to Freddie Mae and Fannie Mac, and are protected from legal action in the event of a future default.
The reason that these changes won’t keep most borrower from getting a loan is that loans that don’t qualify (“Non-QM” loans) will still be offered by some banks—they’ll simply keep them on their own books.
Ability-to-Repay Rule
The bedrock requirement for a QM is an evaluation of the borrower’s debt-to-income ratio. That’s the projection of debts divided by income on a month-to-month basis — especially important when getting a loan with a variable interest rate. If it seems to you that this calculation makes common sense for any loan—I’m in your camp! The reason a bank might choose to issue a loan that does not meet the letter of this requirement could be their analysis that the percentages dictated by the rules are too strict for a particular borrower.
Risky Business
A Qualified Mortgage can’t have any of the risky factors that were hallmarks of the mortgage meltdown. Included are “no” or “low-doc” loans; loans with terms longer than 30 years, interest-only loans, and those with minimum payments that don’t keep pace with interest rates, causing the loan balance to increase.
So: what’s the bottom line for buyers intent on getting a loan this year?
The good news: most loans will go through as before (estimates are about 95% of them). But more paperwork and longer processing times are likely, and since fees and charges for a QM cannot exceed 3% of the mortgage, getting a smaller loan might become more difficult if banks determine they can’t make a profit.
In any case, coming prepared is still the best insurance that your loan goes through as smoothly as possible. If you’re looking to buy a home in Metrowest and Boston this season, I’ll help make sure you’re prepared!
Serving: Ashland, Framingham, Franklin, Grafton, Holliston, Hopedale, Hopkinton, Marlboro, Medway, Mendon, Milford, Natick, Northboro, Northbridge, Westboro, Upton

 

Home Values have increased.

 

Find out what your home is worth.

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Topic:
Mortgage / Finance
Location:
Massachusetts
Groups:
Active Rain Newbies
Posts to Localism
Tags:
home buying advice
metrowest ma real estate
new mortgage rules
massachusetts home buying
hopkinton home buying tips

Post a Comment
Spam prevention
Spam prevention
Post a Comment
Spam prevention

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?

Rainmaker
221,215

John Savignano

Realtor - Hopkinton and Metrowest MA Real Estate
Ask Me A Question
*
*
*
*
Spam prevention

Additional Information