What the Qualified Mortgage Rules Mean to You!

  • January 5, 2016
  • Mortgage Loan

I’m pretty sure that within the last few months, you’ve either read about or heard the news about the “Qualified Mortgage Rules” that the Consumer Finance Protection Bureau (CFPB) has implemented to make sure that home loans (both purchase and refinance) meet certain criteria.

Even if you are not in need of a mortgage loan right now, I’d like to share with you 6 things you’ll need to know about when it’s time for you to obtain a new mortgage.

1. Why were they created? They are a guide for mortgage companies and consumers to make sure that the loan terms are fully disclosed, with no interest rate or payment surprises. It also covers companies who collect your monthly mortgage payment and how they are supposed to disclose your loan information to you.

2. What does “Qualified Mortgage” really mean? It means that a lender must determine if a borrower has the “ability” to repay the loan, based on income, credit and length of time on the job. And, it’s just not for the first few years of the loan—but over the term of the mortgage.

3. Are there certain income requirements? Yes, your total debt, including your new mortgage payment, must not exceed 43% of your gross income. That also includes taxes and insurance.

4. What are the benefits? There are now restrictions on the types of loans that lenders can offer their clients. Risky loans such as “negative” principal (where the loan amount actually INCREASES over time) or “interest-only” loans have been pretty much eliminated.

5. How hard will it be to get a mortgage? It may be a little bit more challenging than it was before January 10, 2014 (when the rules went into effect) because of the 43% debt-to-income ratio. But, adjustments can be made by paying down some bills or increasing your down payment.

6. After I sign for the loan, what’s next? Companies must now send you a monthly statement showing you exactly how your payments are credited towards interest and your mortgage balance. If you have an adjustable-rate mortgage, they must give you plenty of notice about how much your payment will increase or decrease. There are also new rules when it comes to loan modifications or foreclosure waiting periods if you are not able to make your monthly payments.

The whole goal is to avoid the mortgage crisis that occurred a few years ago. If you are thinking of buying another home or refinancing, let’s talk—because the rules have changed.