Mortgage Loan Changes - Home Loans and the New Dodd-Frank Act
Many in the real estate industry have heard about the Dodd-Frank Act, the new law that went into effect January 10th of this year.
This act put new mortgage loan guidelines in place that will have an impact on both home buyers and sellers.
This new law falls under the administration of the Consumer Financial Protection Bureau and is designed to protect buyers and make sure that the new loans are strong enough to be sold on the secondary investment market.
Two of the most important mortgage loan changes deal with the borrowers ability to repay and what is considered a qualified mortgage.
Concerning qualified mortgages, one of the items a lender will look at is a borrower's total monthly debt in relation to their total gross income.
Before the market collapsed, that debt to income ratio could be as high as 60%.
Most recently, that number was as still as high as 50%.
Under the Dodd-Frank Act, in order for a mortgage to be considered a qualified mortgage, the borrower's debt to income ratio must be no higher than 43%.
Some lenders may go higher than this with mitigating factors like increased assets or a high credit score.
However, that lender can be assured that he will have to keep that loan in their own portfolio for some time since it will not be as attractive on the secondary market.
Also, a qualified mortgage will not allow a borrower's monthly payment on their new loan be in excess of 31% of their gross monthly income.
Again, you can expect a small amount of leeway regarding this with certain lenders and the same mitigating factors mentioned above.
Another of the notable mortgage loan changes concerns total fees and closing costs.
Buyers are looking at a maximum of 3% in closing costs with no fees at all.
These fees include: mortgage broker points, title insurance and any origination fees.
This should eliminate a borrower getting to the closing without knowing the closing costs or being taken advantage of.
The lenders will also be much more vigilant in determining a borrower's ability to repay their loan.
Expect a slightly longer application and approval process due to the increase in paperwork that will be requested and the time it will take for the underwriters to verify existing debts.
This shouldn't cut down on approvals too much, however, most of the new loan will be backed by Fannie Mae or Freddie Mac will have minimum credit scores and other guidelines that will need to be met.
This won't be the case with conventional loans, though.
With this being said, the new mortgage loan changes as a part of the Dodd-Frank Act should not have a big impact on most applicants.
It should be business as usual, unless you are an applicant that is close to the stated ratios.
If that is you, you can the expect increased scrutiny of your application.
The Dodd-Frank Act is important legislation that all potential home buyers should be aware of.
This act put new mortgage loan guidelines in place that will have an impact on both home buyers and sellers.
This new law falls under the administration of the Consumer Financial Protection Bureau and is designed to protect buyers and make sure that the new loans are strong enough to be sold on the secondary investment market.
Two of the most important mortgage loan changes deal with the borrowers ability to repay and what is considered a qualified mortgage.
Concerning qualified mortgages, one of the items a lender will look at is a borrower's total monthly debt in relation to their total gross income.
Before the market collapsed, that debt to income ratio could be as high as 60%.
Most recently, that number was as still as high as 50%.
Under the Dodd-Frank Act, in order for a mortgage to be considered a qualified mortgage, the borrower's debt to income ratio must be no higher than 43%.
Some lenders may go higher than this with mitigating factors like increased assets or a high credit score.
However, that lender can be assured that he will have to keep that loan in their own portfolio for some time since it will not be as attractive on the secondary market.
Also, a qualified mortgage will not allow a borrower's monthly payment on their new loan be in excess of 31% of their gross monthly income.
Again, you can expect a small amount of leeway regarding this with certain lenders and the same mitigating factors mentioned above.
Another of the notable mortgage loan changes concerns total fees and closing costs.
Buyers are looking at a maximum of 3% in closing costs with no fees at all.
These fees include: mortgage broker points, title insurance and any origination fees.
This should eliminate a borrower getting to the closing without knowing the closing costs or being taken advantage of.
The lenders will also be much more vigilant in determining a borrower's ability to repay their loan.
Expect a slightly longer application and approval process due to the increase in paperwork that will be requested and the time it will take for the underwriters to verify existing debts.
This shouldn't cut down on approvals too much, however, most of the new loan will be backed by Fannie Mae or Freddie Mac will have minimum credit scores and other guidelines that will need to be met.
This won't be the case with conventional loans, though.
With this being said, the new mortgage loan changes as a part of the Dodd-Frank Act should not have a big impact on most applicants.
It should be business as usual, unless you are an applicant that is close to the stated ratios.
If that is you, you can the expect increased scrutiny of your application.
The Dodd-Frank Act is important legislation that all potential home buyers should be aware of.
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