7 Ways New Mortgage Rules will Affect You
The mortgage industry is set to adapt a number of new mortgage rules designed to protect consumers from abusive or reckless lending practices, and protect lenders from lawsuits in the future. Of course, not everyone will be happy to see these changes coming.
Some of the new rules issued by the Consumer Financial Protection Bureau will affect qualification requirements and the types of mortgages you can get starting in January. The good news is lenders have already tightened lending standards in the wake of the financial crisis, so you may not be affected by the rules if you’re planning to buy or refinance a home loan in the near future.
Here are the ways the new mortgage rules may affect you.
1. Student Loans Count in Debt-to-Income Ratio
First-time home buyers with student loan debt will have a harder time getting a mortgage in 2014 because debt-to-income ratio will be capped at 43% — including student loan debt.
2. Those Who Have Lost a Job or Had a Career Disruption Will Have Trouble
People who have suffered job loss or a disruption in their career in the last five years will have difficulty getting a mortgage soon, as verification of employment standing and job history are important requirements, despite historically high unemployment.
3. People in High-Cost Markets Will Need Jumbo Loans More Often
Many people living in areas hit hard by the housing collapse or in high-cost markets will be forced to turn to jumbo loans, particularly in California and Florida. Jumbo loan caps under federal housing guidelines have been reduced to $625,500 from $729,750. This means borrowers buying a home for more than $625,500 will be forced to turn to jumbo loans instead, which require better credit and a higher down payment.
4. Self-Employed Borrowers Will Have Trouble
The Ability-to-Repay guidelines require lenders verify a borrower’s income, assets and debt obligations to make sure they can afford the mortgage payments. If you’re self-employed or your income is hard to verify through W-2s, you may have difficulty getting a Qualified Mortgage. Many lenders will be unwilling to make loans that don’t meet the qualified mortgage standard, as Fannie and Freddie don’t buy these mortgages, and you may be left with few options.
5. Guarantee Fees Are Increasing — and Passed on to You
Fannie Mae and Freddie Mac recently announced that guarantee fees they charge lenders to service loans will increase. Lenders usually pass these fees on indirectly to consumers, so your ability to borrow may be hurt. With limitations placed by the qualified mortgage rules capping the debt-to-income ratio at 43%, higher fees and mortgage rates make it harder to qualify for a home loan.
6. Interest-Only Loans Will Become Scarce
If you plan to use an interest-only loan to buy a home in the near future, think again. New mortgage rules mean mortgages that do not require borrowers pay principal during an initial period are not considered qualified mortgages. These loans were very popular during the housing boom and helped caused the crisis, as millions of homeowners couldn’t afford the larger payments when the interest-only period expired. Most lenders have already stopped offering these loans, but they will become even more scarce in 2014.
7. New Mortgage Servicing Rules Give You Greater Protection
It’s not all doom and gloom; new mortgage servicing rules require servicers to give you regular, accurate information about your loan balance and fix any mistakes quickly. This new rule will also prevent your loan servicer from starting foreclosure until 120 days after your last payment.