Those in the process of buying a home should be aware of the fact that there are quite a few changes to mortgage rules and regulations for the year 2014. Most of these updates have been issued out by The Consumer Financial Protection Bureau to prevent risky lending and prevent the possibility of the formation of another housing bubble.
Unfortunately, many of these changes will likely prove to make buying a home more difficult. This is especially the case for would-be home buyers with poor credit. Because mortgage authorities want to prevent foreclosures, rulings have been put into place to prevent those who might have trouble making mortgage payments from being approved for a mortgage loan. The main goal behind the Dodd-Frank Act that was passed in 2010 and is largely responsible for new rules is to make sure that those who are granted a mortgage loan will be able to pay it back.
The rules are set up to do away with any kind of predatory lending or lending that entails excessive risks. However, many of those looking for a mortgage loan might not actually be affected by changes. In many cases, such lending has already been done away with on the market and was gotten rid of before it could possibly be influenced by the implementation of Dodd-Frank Act provisinos.
Ability to Pay Guidelines
While borrowers have obviously long been required to show some proof of ability to pay back a loan, 2014 changes have made the required documentation more extensive and involved. Those applying for a mortgage must show documentation describing current employment status, any other income, debt, alimony, or child support payment, credit history, and monthly debt-to-income ratio.
Qualified Mortgage Guidelines
The underwriting of a “qualified” loan follows all of the legal guidelines set forth. A qualified loan must not have a life of any more than 30 years, and the amortization on the loan must not be negative. In addition, the debt-to-income ratio for the borrower on a “qualified” loan cannot be any more than 43 percent.
Loans that satisfy the Dodd-Frank Act cannot be “interest only” loans, and they cannot include any kind of balloon payments that require the borrower to pay back a large portion of the loan amount at one time. Another qualified mortgage guideline that must be satisfied under the Dodd-Frank Act is that the fees and points applied upfront to a mortgage loan cannot be more than 3 percent of the entire, overall loan amount. The fact that these types of upfront fees are not permitted is likely to make lenders less likely to provide loans of small values, such as values of $100,000 or less.
While the 2014 changes may make it more difficult for some individuals to buy a home, they will hopefully work to prevent a housing bubble in the long run. While there are more challenges out there to acquiring a mortgage loan, there are also tools and programs that attempt to assist people hoping to own their own homes. If you’re are having problems being approved for a mortgage, do some research and you will hopefully come upon a program that will allow you to find the financing you need.