Stricter Qualified Mortgage Rules take effect this year
The Federal government’s new qualified mortgage rules will take effect for borrowers originating
home loans for purchase or refinance this year. The new rules detail documentation that the lender
will require to verify income, expenses and assets.
The Qualified Mortgage rules limit the types of mortgages your lender can issue if they want to resell
the loan on the secondary market, but lenders may modify the requirements if the note is kept in house.
The new rules will give lenders less discretion to deal with unique circumstances of individual applicants and may make getting a mortgage for self employed borrowers more difficult.
Some key features of the qualified mortgage are:
Interest only periods and negative amortization are prohibited
Loan periods cannot exceed 30 years and no balloon payments
Fees are limited to 3% when mortgages exceed $100,000
Teaser rates that spike upwards are prohibited
Most borrowers are already annoyed at the intrusive nature of the financial documentation required
to originate a mortgage. The purpose of the new regulations, regulators claim, are to avoid a repeat
of the 2008 financial crash.
It’s debatable whether unqualified borrowers caused the real estate bubble to burst – many other factors were involved including bundling and reselling of mortgage notes to create a new financial product for investors.
Many unexpected circumstances forced borrowers to default when their home value fell:
Unemployment shot up to 10% leaving millions with no income
Job transfers – sell, maintain two households or rent
Medical bills, illness and death can force many sales
Despite many state and Federal attempts for lenders and borrowers to renegotiate mortgage loans, very few were ever modified, forcing insolvent borrowers to lose their homes.
There are still many options for home buyers to qualify for a mortgage, although it may cost you
more. Low down payments in the 5 to 10% range are still available either through FHA and VA loans and some conventional loans are offering down payments of 10%. Expect to pay a Mortgage
Insurance premium with these lower down payment loans and possibly a higher interest rate.
Fortunately interest rates are still near historic lows and housing prices have not yet recovered what
they lost in the previous eight years. The affordability factor as calculated by the Federal government is still much better then it was in 2006.