Mortgage lending has changed immensely since the real estate bubble. Government regulation has become more proactive and stricter, despite seeing some loosening in recent years. 2014, however, will be a new year for new rules. The Federal Housing Finance Agency is set to enact several new policies this year, which will change some of the lending procedures. Here’s what to expect for the mortgage industry in 2014:
MORTGAGE PREDICTIONS FOR 2014
New home buyers are affected by the changes in home lending. These qualified mortgage or QM rules require lenders to prove a borrower's ability to repay a loan. There are several new guidelines that will go into effect January 10, 2014. Many home loan lenders have already begun to use these new rules in order to remain in compliance.
DEBT TO INCOME RATIO OF 43 PERCENT
The new lending rules have stringent standards about the amount of income that needs to be generated. A mortgage borrower needs to have a certain amount of income or cash flow, and the debt that a borrower can carry is restricted. Compensation circumstances no longer can be used to qualify a new borrower. A mortgage applicant with a sizable bank account and many assets will need to have a certain income as well. This new requirement can eliminate many self employed borrowers because self employed applicants may have an income that is fluctuating or difficult to prove.
A 3 PERCENT RULE
New QM standards limit the fees for originating a loan to 3 percent of the lending amount. For a homeowner financing a more expensive home, such as a $400,000 home, the lender can easily keep fees under 3%. However, if you’re financing a smaller, more affordable home, the lender might find it difficult to keep fees under 3%. As a result, mortgage lenders will be less likely to offer loans for smaller amounts, since it will be harder to recoup costs.
LOWER LOAN LIMITS
The lower loan limits for a Fannie Mae or Freddie Mac backed loan have been delayed. This announcement came in October of 2013. The Federal Housing Finance Agency has delayed changing the limits for these loans until the new QM rules are in effect. The current limits for these government backed loans range from $417,000 in lower cost areas to $625,500 in higher cost areas.
RULES FOR BANKRUPTCIES
A new home buyer who has a previous bankruptcy or house foreclosure may need to wait one year to several years before applying for a new home loan. The type of mortgage will determine the number of years for a borrower's waiting period. FHA loans can be granted as soon as one year past the completion of a foreclosure if the new borrower has documented proof of a catastrophic event, however.
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