In January of this year, we saw a lot of rule changes and new regulations in the mortgage and lending industry. It makes sense. After the Great Recession, borrowers and lenders alike were scared. Many individuals across the board blame the previous mortgage qualification standards for so many failed mortgages.
While the fear has subsided and the lending world has gotten back on its feet, the demand for increased lender and borrower protection has been met. But, what do these new ‘qualified mortgage’ rules look like, why were they created and what do they mean for you as the borrower?
We think Forbes’ recent article, ‘7 Questions You Need To Ask About The New Qualified Mortgage Rules,’lays it out quite nicely.
Of particular note is question number three: How Much Income Will I Need To Qualify (For A Mortgage)?
The new rules and regulations state that your total monthly debt-to-income ratio must be no higher than 43 percent. This means when you add your mortgage payment; tax insurance; and additional debt such as credit card payments, car payments and student loan payments, the total debt must be less than 43 percent of your annual income.
The Consumer Financial Protection Bureau’s (CFPB) new rules say that not only must you be able to afford the monthly cost of your mortgage at the time you qualify, but you must also be able to cover the cost of any increased monthly mortgage payments. For example, if you are looking into an adjustable-rate mortgage (ARM), your annual income will need to be able to cover the low introductory payments and the larger monthly payments during the latter half of your loan.
Additionally, the Forbes article addresses how this will affect your ability to receive a mortgage. This is certainly a legitimate concern. While the new standards will be more challenging to meet, if you meet them it won’t be any harder to qualify for a loan. In fact, it will help protect you and your lender.
Do you have questions about the new qualified mortgage rules? Contact one of our Rob today!