Each year can bring anything from minor tweaks to major overhauls in mortgage lending, possibly affecting how much house you can afford to buy. To help simplify how to financially prepare for homeownership this year, we’ve compiled some of the more important gamechangers for you to be aware of in 2014.
New Qualified Mortage Rules
In January, the Consumer Financial Protection Bureau (CFPB) implemented new regulations under the Dodd-Frank Act for determining what constitutes a qualified mortgage. “Qualified mortgage” is actually a technical term, referring to standards and loan term limits for lenders to meet as part of determining a borrower’s ability to repay loans that are made. Qualified mortgage is likely to become the new industry standard of what loans will be originated by lenders.
These new measures could make it easier for you to qualify on a loan or they could make it more difficult. Regardless, much of the effect is to protect you from excessive fees and from what have been determined to be unsafe loan terms and features. They also help you avoid taking on risky debt that you ultimately may be not be able to afford.
Highlights of the new qualified mortgage standards include:
-
- Requiring a monthy debt-to-income ratio no higher than 43%
-
- Lenders will have to judge your ability to afford a loan’s monthly payments at the highest possible interest rate, as opposed to temporarily low rates from things like introductory rate specials or adjustable-rate mortgages using third-party records.
-
- In general, qualified mortgages cannot have certain features considered to be risky, such as interest-only periods, negative amortization, balloon payments and loan terms longer than 30 years.
-
- Qualified mortgages place restrictions on upfront and undisclosed fees that lenders could tack on a loan, such as origination fees and fees for real estate-related services.
-
- There were no new requirements added for a minimum down payment in order for a loan to be a qualified mortgage. This helps ensure that down payments of less than 20% will still be available to certain qualifying homebuyers, potentially making a new home more affordable for you. Check out our down payment savings strategies
- There were no requirements added for a minimum credit score. This doesn’t ease credit score requirements, but it doesn’t make them any more restrictive. You will likely still want to aim for a credit score of at least 620, and ideally one above 720. Find tips to boost your credit score here
Special exceptions may apply to some of the CFPB’s new qualified mortgage rules. Consult with your loan officer for more information.
Changes to FHA Loan Limits
FHA loan limits fell in most counties nationwide from 2013 to 2014. If you are considering an FHA loan, this change could impact how much house you can finance. Make sure that your information is up to date and that you know what the FHA loan limits are in your area.
Supplemental Home Financing Tips
We’ve written a variety of helpful articles on how to financially prepare for homeownership and determine what may be within your budget, focusing on things from newsy housing market updates to tried-and-true guidelines for getting your finances in fighting shape. Explore these on the Richmond American blog under home financing.
