new-mortgage-rules

There has been a lot of talk about the new mortgage rules that went into effect earlier this year, particularly “qualified mortgages” and the “ability to repay” rule. So, what does it all mean?

Contrary to what you may have heard, qualifying for a mortgage loan will not necessarily be harder than it used to be. If you plan on buying a house sometime in the near future, here are four things you should know about the new mortgage rules:

The rules were designed to protect you, the consumer
Prior to these new mortgage rules, lenders had the ability to choose their own underwriting guidelines. As a result, some mortgage lenders (not us) practiced irresponsible lending practices and put consumers in loans they could not afford to repay. Ultimately, these unethical practices led to the housing market crash.

To put a stop to these faulty and risky lending practices, the Dodd-Frank Act was put into effect and the Consumer Finance Protection Bureau (CFPB) was formed. As a result, the CFPB created the “qualified mortgage” and “ability to repay” rules to ensure every consumer is provided with ethical, easy-to-understand and affordable loans.

Qualified mortgages are safer and easier to understand
By definition, a qualified mortgage is one that avoids risky features that make it difficult for borrowers to repay their loan, such as loan terms that exceed 30 years, negative amortization and interest-only payments. Under the “new” mortgage rules, lenders are also prohibited from charging points and fees that total more than 3% of the loan amount. Further, to ensure borrowers can reasonably afford to repay their loan, lenders must confirm that each applicant has a debt-to-income ratio of less than 43%.

It will NOT necessarily be harder to qualify for a mortgage
Again, the ability-to-repay rule was instituted to ensure borrowers are provided with loans they can afford. Responsible mortgage lenders, like Ross Mortgage Corporation, have been verifying income, assets and credit history to determine whether applicants can reasonably afford the mortgage loan they are requesting. As such, not much will change when it comes to qualifying applicants for a mortgage loan.

When you apply for a mortgage loan, be prepared to have your pay stubs, asset statements, tax returns, W-2s, debt obligations and current mortgage statement (if applicable) ready to show your lender. In doing so, you’ll be able to prove your creditworthiness and your ability to repay the loan.

Finding the right lender is more important than ever
When shopping for a mortgage lender, it’s not only important to find a company that offers competitive rates and fees, but one that has experience following government lending guidelines and more importantly, one that has your best interest at heart.

If you have questions about the new mortgage rules and how they affect your ability to buy a home, give call us at 800.521.5362. We would be happy to answer your questions! 

tross

Tim Ross is CEO of Ross Mortgage Corporation and a lifelong mortgage lender. He has served as president of the Mortgage Bankers Association of Michigan and two terms as a governor on the Residential Board of Governors with the Mortgage Bankers Association of America. Today, Tim is an active participant, charter member and past director of America's Mortgage Cooperative and recently served as the Chairman of the Mortgage Industry Advisory Board for the State of Michigan. Outside of work, Tim enjoys running, golfing and participating in triathlons.

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