A while ago, there were some rumors that mortgage loan limits might be lowered, which implies that homebuyers would receive lesser amounts. As of the 24th of October, this news has been confirmed. The new limits will be announced later this month and changes will be made in the spring season of2014. Other than these, there are quite a few other changes to mortgages in the next coming months. Let’s look at the most impactful of these and the consequences they can have on homebuyers.
In the first month of 2014, qualified mortgages, abbreviated as QM, will be launched for the first time. QM is a mortgage that has a fixed rate and a debt – to – income value that is less than 0.43. QM will be granted only if the consumers provide complete financial documents and the lenders have a detailed analysis of their income. If any of the information is not true, the mortgage is regarded as a non – qualified mortgage.
The most notable effect of this is going to be the fact that consumers might be able to buy higher valued mortgages.
Risk – Based Pricing
Risk – based pricing is the name given to the practice of lending loans with increased cost to riskier consumers. As of now, this practice is fairly common in the real estate market. Until this is reduced, the loan limits will be able to maintain their current values, which is around $417,000.
If consumers can get more credit, loan pricing can drop. The industry experts believe that this could be the first stepping stone to long – term recovery of the housing market.
If the loan limits are reduced, borrows may have to pay increased prices for their mortgage loans. They could also develop an interest in jumbo loans that are associated with higher rates and fees and standard loans. Jumbo loans are expensive because there are not enough investors. If the loan limits are decreased for jumbo loans, the loan volume in the secondary markets would also decrease. This is because even the general borrowers would be forced to buy these loans.
No matter what the effects, as of now, there are plans to reduce the loan limits next year. However, the condition of the financial markets in the New Year can drastically affect the scenario and there is still a possibility that there will be no reduction at all.
Whatever the situation may be, you should get mortgage approval now even if you are not planning to buy right away.