As 2014 has dawned upon the country, the new mortgage rules have also been enforced. Now every lender will first thoroughly evaluate if you are capable of paying a loan, and only then will they provide you the amount you need. During the time the industry was in a crisis, mortgages were given even to those people who could not really afford them and pay them off in the future. In the middle of 2007, such mortgages actually made up 14% of the whole lot.
The new mortgage rules have been implemented so that mortgages do not become underwater, and another financial crisis do not take place. All risky borrowers are disqualified and no risky mortgages can be sold by the lenders. The new rules do call for stricter requirements, so obviously not every application will be approved.
For the real estate industry, this is really good, but can the same be said for the consumers as well? Not really, particularly if you are a first time homebuyer. Here is what you definitely need to know with regards to the new policies.
Ability of Paying Back the Mortgage
Lenders are not going to approve your mortgage application until they have evaluated your income, debts, assets and credit history. No matter what the interest rate is, you will not be able to pass qualification if you fall short of the requirements. Agree to pay a higher interest rate, and the same will still hold.
The rules introduce a new type of loan, which is being called a Qualified Mortgage. This is the name given to a loan which the borrower will be able to pay off, thus preventing the lenders from getting caught with legalities. The term of such a mortgage cannot be greater than 30 years and it cannot have any risky characteristics such as negative amortization and interest only payments. Moreover, the debt-to-income ratio must be 43% at the most.
Qualified mortgages also put restrictions on the lenders and they cannot charge excessively high fees.
Revelation of all Calculations and Services
The new mortgage statements are going to be extremely detailed and will provide you with complete information. For instance, you will know the exact amount you owe and the exact amount that is applied to the principal and interests. You will also be provided with a review of how your monthly statements are evaluated.