If you’re refinancing your home or getting a mortgage to buy one, your lender will likely ask for more documentation of everything you claim on your loan application.
The New Lending Rules: Qualfied Mortgages
The new rules they were discussing, called the qualified mortgage or ability-to-repay rule, protect consumers from unscrupulous lending practices and provide creditworthy homebuyers with access to safe mortgage financing. That mean lenders must look deep before making a mortgage loan.
Lenders can still make any loans they like, but if they go outside the qualified mortgage rules, they lose protection against borrower lawsuits claiming that the loan was unfair or inappropriate. Many lenders have faced lawsuits filed by state attorneys general and class actions over loans made before and during the housing crisis.
To make a qualified mortgage, the lender will have to follow exact steps to prove eight things beginning in 2014:
1. Your current income or assets.
2. Your current employment status.
3. Your credit history.
4. The monthly payment for the mortgage.
5. Your monthly payments on other mortgage loans you get at the same time.
6. Your monthly payments for other mortgage-related expenses, such as property taxes.
7. Your other debts.
8. Your monthly debt payments, including the mortgage, compared with your monthly income and how much money you have left over each month after paying your debts.
Kevin Watters, CEO of mortgage banking for JPMorgan Chase, agreed that low- and moderate-income buyers, as well as self-employed buyers who don’t have a consistent flow of income, might have a tougher time in the new lending environment. “We need to work together to help first-time buyers into affordable housing options,” he said.
Cash vs. Mortgage
The new guidelines worry REALTORS® who see homebuyers who use a mortgage being passed over by sellers who accept offers from cash buyers (most cash buyers are investors and about one- third of recent existing- home sales involved investors).
I can’t blame sellers for taking cash deals. If I were selling my home, I might not want to wait for a buyer to go through a lengthy mortgage approval if I could quickly close the deal by accepting a cash offer from an investor.
Will It Take Longer to Get a Loan?
Since the rules aren’t in place yet, we won’t know how long it’ll take to process loan applications using the qualified mortgage until after January.
Regardless of whether you apply for a mortgage now or after the qualified mortgage rules start, your best bet is to:
Assume the loan process will be slower than the last time you got a mortgage, so don’t let it stress you out.
Make a copy of every piece of paperwork you give to your lender. That way, if you’re asked to send it again, you’ve got it ready to go.
Discuss lender choices with your REALTOR®. She’s watching local people go through the mortgage application process every day and knows what lenders are really doing versus what their loan officers say they’re doing.
Don’t lie on your loan application. All the new verifications mean you’re just going to get caught and then you won’t get your loan.
Regina Wallace – Prospect Equities~Infiniti – Real Estate Specialist
Call or Text: (708) 966-9065- E-fax: 800-654-4904 – Email: Regina@reginawallace.com