Many of the biggest changes coming to the real estate market in 2014 deal with mortgages, which can affect how much home buyers will be able to afford in the new year. Although FHA loan limits have received the most media attention recently, it’s important to know that qualified mortgages will see many changes as well.
The new “qualified mortgage” provisions that are included in the Dodd-Frank Act will go into effect on Friday, Jan. 10, meaning that lenders will begin evaluating borrowers on eight underwriting factors to determine their ability to repay the loan. Intended to renew confidence in the mortgage market, the new rules are designed to protect home buyers from predatory lending practices. After the great recession, it became clear that the lending industry needed to work harder to pre-qualify a borrower’s ability to pay back their loan. The new rules are intended to prevent a downward spiral from reoccurring.
According to the U.S. Department of Housing and Urban Development, mortgage loans must follow these guidelines to meet the qualified mortgage definition:
- Terms must not exceed 30 years.
- Periodic payments are required.
- Must be insured or guaranteed by FHA or HUD.
- Limited up-front points and fees to no more than three percent, with adjustments to facilitate smaller loans.
One of the most significant changes to the new rules stipulates that a borrower’s debt-to-income ratio cannot exceed 43 percent, which relaxes the previous margin of 36 percent. Additional areas that will be verified include assets, credit history and employment status, among others.
It is important for Atlanta new home buyers to understand the changes that are occurring in the mortgage industry and to be prepared to undergo more scrutiny before receiving a loan. Home buyers should be sure to consult a trusted lender who can advise them on all of their options and help determine which loan type is right for them.
Great information provided by Atlanta Real Estate Forum.
Great information provided by Atlanta Real Estate Forum.