Buying a home can be stressful. It’s the largest purchase most of us will ever make and loaded with terms and rules we may not be familiar with. How about CFPB? Heard of it? it’s been getting a lot of news lately. It’s the Consumer Financial Protection Bureau. It’s significant because its new rules regulate mortgage lending.
These new rules are meant to curb the predatory lending practices that contributed to the financial collapse of 2007,2008. At the height of the housing bubble,some lenders played fast and loose with lending standards and put people in houses they couldn’t afford with products like “interest only” loans or ” no doc” loans that didn’t even require income verification. When the sticker shock of the true cost of these mortgages set in, defaults skyrocketed.
The new regulations are over 4000 pages long but can be boiled down to a few key elements. Perhaps the most important of these is QM or Qualified Mortgage. A lender should not offer you a mortgage that contains risky features such as terms that exceed 30 years , those interest only payments or cause a home loan debt to grow over time. Also lenders should not offer loans that have more than 3 % upfront points or fees. Finally and most importantly, lenders should not offer products that push a persons debt to income ratio above 43% of their income. If they do push these non qualifying loans on a homeowner they open themselves up to some liability on that loan even if they subsequently sell it to someone else.
It is natural to assume that lenders would be more cautious these days based on recent experience and new regulations; and in the last few years that has been the case. But according to the mortgage credit availability index access to credit has been steadily improving and loans are easier to get now than in 2012 and 2013. The catch is that borrowers need to be prepared to really verify their income by turning over financial information like assets,employment status, debts and credit history so that their debt to income ratio can be accurately determined. This information may be requested more than once so my recommendation is to create a file that you can easily access from anywhere.
Some people that are self employed or are getting a so called “jumbo loan” over $417000 may have a few more hoops to jump through, but that doesn’t mean there are not products out there for everyone. Starts in new construction hit a 5 year high last November , new home sales are running the highest since 2008 and inventory of existing homes for sale in this area is the lowest I’ve seen in years! Houses in this general area are only on the market for 3-4 months so obviously a lot of people are getting financing.
Also keep in mind once you get a loan there are new restrictions regarding how your lender must treat you including crediting your payments quickly,managing your paperwork better and responding directly to consumer questions. So, if you have a problem, you shouldn’t feel abandoned as in the past.
Just like any product, a buyer has multitudes of choices of lenders so don’t waste too much time staying with a lender that cannot provide you the loan you need and also just like any product the buyer should always beware even with the new rules. But with the right approach these new restrictions should end up being beneficial to both consumers and lenders. Happy shopping!