It’s the beginning of a new year, which means spring is on the way. The holidays are over, and people are starting to think about the upcoming warmer seasons. Typically in Colorado, spring and summer are the busiest times of the year for home sales and home purchases. If you are thinking of applying for a mortgage in the near future, it’s important that you are aware of the new set of rules that went into effect on January 10, 2014, which will determine who is able to qualify for a mortgage.
The new mortgage rules are part of the Dodd-Frank Act.The Dodd-Frank act was signed into federal law on July 21, 2010 by President Obama in a response to the financial crisis that occurred during the late 2000s. The Act was intended to make positive changes with regard to the financial services industry in America. Also, it was enacted to prevent future financial meltdowns in the United States. In terms of mortgages, the Dodd-Frank Act requires lenders of qualified mortgages to be more selective as far as whom they approve for loans. Now, lenders are required to analyze mortgage applicants’ financial information more thoroughly to ensure that applicants actually have the ability to repay the loan.
Mortgage lenders must now adhere strictly to the “Ability to Repay” rules. Some of the factors lenders must evaluate prior to offering an applicant a home mortgage include:
- Current income and/or assets
- Current employment status
- Credit history
- Monthly payment of the present mortgage, if any
- Monthly debt payments
- Debt-to-income ratio
In most cases, the “magic” debt-to-income ratio number must be less than 43 percent.
Other factors that lenders must consider include:
- Limiting the term of the loan to 30 years or less
- Limiting the points and fees paid by the borrower to 3% of the total loan amount
- Eliminating risky loan features (such as an interest-only time period)
How is the Dodd-Frank Act Going to Affect Borrowers?
There are both positive and negative views on how the Dodd-Frank Act will affect the general population of potential borrowers. There is some concern that moderate wage earners who live in areas with high-cost real estate will have true problems qualifying for mortgages. But many believe that the Dodd-Frank Act was passed to protect prospective mortgage borrowers from assuming a loan that they cannot afford to pay on a long term basis.
If you have any questions about the new rules that took effect on January 10, 2014 and you want to know if the rules may have influenced your ability to qualify for a mortgage, call The Loan Arranger today at (303) 862-4742. We are happy to go over the new rules with you either on the phone or in person.