By Les Christie @CNNMoney January 10, 2013:
When consumers apply for a mortgage, they often struggle to understand how much of a monthly payment they can afford to take on.
The Consumer Financial Protection Bureau (CFPB) is finalizing the Ability-to-Repay rule that requires lenders to obtain and verify information to determine whether a consumer can afford to repay the mortgage. This is one of the signature new rules the CFPB is issuing to meet its goal to help restore trust in the mortgage market by ensuring that responsible consumers get responsible loans. And it helps ensure that lenders can extend credit responsibly – without worrying about competition from unscrupulous lenders.
“These new rules are very much in line with how we currently qualify borrowers” said Michelle Castle, Branch Manager with Guild Mortgage. “Certainly there will be some changes to guidelines but most of our customers utilize either FHA/VA, conventional or jumbo loan programs and we don’t expect these to be greatly impacted by the new ruling”.
This is how it works:
Which lenders do the rules cover? All companies that give out mortgages will be governed by the new rules — big national banks, savings and loans, community banks and credit unions.
How is a “qualified mortgage” defined? The rules spell out what is called a qualified mortgage. To judge whether a loan is qualified, lenders must consider these factors:
· Income and assets must be sufficient to repay the loan;
· Borrowers must document their jobs;
· Credit scores must meet minimum standards;
· Monthly payments must be affordable;
· Borrowers must be able to afford other debts associated with the property such as home equity loans;
· Borrowers must be able to afford all home-related expenses such as property taxes; and
· Lenders must consider a borrower’s other obligations like student loans, car loans and credit cards.
What if a borrower doesn’t meet all those guidelines? A homebuyer could still get a mortgage, but only if the mortgage payments don’t exceed 43% of the borrower’s pre-tax income.
When will the rules go into effect? The rules start to kick in by January 21, but lenders will have 12 months to fully implement them.
Are there any exceptions? People with subprime adjustable-rate mortgages or other risky loans who are refinancing can do so without going through the full underwriting process required by the new rules.
The CFPB is also proposing that mortgages issued by certain non-profits for low-income homebuyers be exempt from the rules. The agency also wants to make exceptions for some refinancing made through the Home Affordable Modification Program and for some loans issued by small community lenders. These proposals, if approved, will be finalized this spring.
If you have questions about the new rules and how they will affect your home purchase, just give me a call or APPLY ONLINE. Let’s talk about how I can help you with your home ownership dreams.
Michelle Castle provides mortgage loans to all of North Texas and Southern Oklahoma. Call Michelle Castle at (903) 892-1998 if you are looking for a home loan in North Texas and Southern Oklahoma. Click here to visit Michelle’s website and apply for a loan.
Source: CNNMoney, Consumer Financial Protection Bureau
Tags: mortgages, loans, lending, ability-to-repay, qualified mortgage, lending,