New Year- New Mortgage Rules

New Year – New Mortgage Rules

The New Year has brought new mortgage rules into play that may affect a borrower’s ability to secure a home loan. The government has put these rules into place to prevent what happened in the past with over borrowing.

According to Brendon Fray, Senior Mortgage Banker with Darien Rowayton Bank, the recent Qualified Mortgage changes are necessary to bolster confidence in mortgage backed securities (MBS) for the investors who buy them and to try and prevent homeowners from getting loans that they really can’t afford. Even though the new rules have made a segment of potential home buyers qualify for less in purchase price, the investors are confident that with them, the buyers will be in a comfortable price range for their ability to repay their mortgages.

He also states that under the new Ability-to-Repay Rule, mortgage lenders must look at customers’ income, assets, savings, and debt, and weigh those against the monthly payments over the long term – not just a teaser or introductory rate period. This action presumes long term protection against default after the introductory rate period ends.

One of the rules for instance, is that for loans exceeding a 43% Debt-to-Income ratio, a lender will not have the benefit of protection against default. This makes them less willing to offer loans with a DTI higher than 43%.   This may be overcome by compensating factors in some instances and will not affect a borrower who is utilizing FHA financing. These are government insured loans, geared toward, but not limited to first time home buyers, and can exceed 43% DTI and require less of a down payment, 3 ½%, than would be required by conventional financing. FHA loans also give a borrower with less than perfect credit the opportunity to obtain financing without large increases in interest rates.

Another rule, according to Mr. Fray, involves certain risky features on loans, such as paying monthly interest only on a loan, where there is no reduction to overall principle, keeping the loan amount from declining. Many lenders going forward will be unwilling to offer this type of loan due to a lack of interest on the part of investors to buy these on the secondary market.   However, smaller local lending institutions such as Darien Rowayton Bank may still be willing to offer this type of financing to well-qualified individuals on a portfolio product, loans that are not sold on the secondary market. These are loans that are best suited to those who make a substantial portion of their annual income from bonuses or those who wish to pay less towards their mortgage for other investment opportunities.

He goes on to say that consumers need to remember that the Ability-to Repay Rule is designed to protect their interests and that although they may not qualify now for their dream home, by consulting with a lending professional, they can find out how best to go about reaching the goal of home ownership with confidence.

All this information may sound very confusing to most people looking for a mortgage, but don’t be discouraged from applying for a loan and purchasing your home. As home prices are slowly inching upward and mortgage rates are stable, now is a good time to buy before you’re priced out of the market.

We at Bondi Realty Group recommend working with small local bankers. Finding the right scenario for you makes all the difference in making for a smooth transaction. Work with your Realtor to find the right mortgage banker for you.

 

Betty Bondi Bondi
Realty Group LLC
203-899-9990

 

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