New Requirements for Buying a Home in 2014Ed Hughes, President, Mortgage Banking, Univest Bank and Trust Co.
The Consumer Financial Protection Bureau’s new Ability-to-Repay/Qualified Mortgage rule goes into effect in January 2014. This rule requires mortgage lenders to take a consumer’s ability to repay a loan into consideration before extending the consumer credit. With this rule there are departures from loan features that were common a few years ago, but the changes are mostly common sense and for most consumers who may be looking to buy a home next year, there is nothing to fear.
In January 2014, “no doc” and “stated” loans, which many believe were the genesis of the financial crisis, will be prohibited by law. Such loans were frequently given in the mid-2000s and provided consumers a very convenient way to obtain a loan, and, oftentimes, overstate their income. Lenders will now be required to verify through independent documentation (e.g., paystubs and W2s) a consumer’s income and ability to repay the debt. There are eight criteria a lender will have to assess in rendering a credit decision in order for a loan to be classified as a Qualified Mortgage (QM):
- Income and assets
- Total mortgage payment (including taxes, insurance and association dues)
- Credit history
- Current employment status
- Other debts and liabilities, including alimony and child support
- Maximum payment in the first five years of the loan
- Any simultaneous loans (e.g., home equity lines of credit and piggy-back loans)
- Debt-to-income ratio of not more than 43 percent
In addition, a QM will be prohibited from carrying the following features:
- Points and fees greater than 3 percent of the loan amount
- Balloon payments (requiring the full remaining amount due on the 10th anniversary)
- Negative amortization (the loan balance can increase even if you make timely payments)
- Interest only (monthly payments that only cover interest)
- Repayment periods longer than 30 years
If you are meeting with a loan consultant, you should ask if your loan is a QM, and, if not, ask why. And if you are buying or refinancing a home and are presented a loan with a balloon, negative amortization or interest-only feature – stop! These features present tremendous risks for most consumers.
In 2014, getting a mortgage loan won’t be more difficult – it will simply be the way we here at Univest have always known it to be. If 2014 is the year for you to buy a home, get started by contacting one of our home loan consultants for more information at 877-723-5571 or firstname.lastname@example.org.
|Univest Bank and Trust Co. is an Equal Housing Lender.|