You may have heard that the Consumer Finance Protection Bureau established new mortgage rules effective January, 10, 2014, but how do they affect you? We asked Sol Skolnick, one of Webster’s Mortgage Banking Officers to break it down.
New Mortgage Rules at a Glance
The goal of these new rules is to provide the consumer with more information and, to ensure that a borrower can afford to repay the loan. Here’s what has changed and what it means for you:
Ability to Repay
You will need to prove that you have the ability to repay the loan based on a thorough evaluation of your income, assets, debts and credit history. Be prepared with all of your paperwork. Even if you have applied for a mortgage before the current regulations will likely make you feel as if you are engaged in a more stringent process this time around. All lenders will require the borrower to provide “Full documentation.” a verified record of the information that is being used to evaluate your credit worthiness.
This new class of mortgage is designed to be easier to understand with fewer fees and points. The general rule of thumb is that you must have a total monthly debt-to-income ratio of 43% or less to qualify for a QM. This debt is the combination of your monthly obligation for principal, interest, taxes and insurance plus any other ongoing obligations for debts such as credit card, auto, school loan payments etc. For wage earners income is generally calculated from the gross income as shown on your annual W-2, although two-years of complete Federal Tax returns must be provided. For self-employed borrowers there are potentially more variables taken in to account when examining your Federal Tax returns. The points and fees for loans that are $100,000 and greater cannot exceed 3% of the loan amount. New loans may not include “Risky features” such as negative amortization, interest-only or balloon payments. The maximum term for a loan is 30 years. Learn more about QM’s here.
More Information & Service Requirements
The CFPB now requires lenders to:
- Send a clear monthly statement to see how your payments are credited
- Fix mistakes quickly
- Credit payments the day they are received
- Send early notice if an adjustable rate is changing
- Contact the borrower if they fall behind on the payment at the 36 day mark
- Show all available options to people who fall behind on their mortgage
At Webster, we pride ourselves in being able to help you achieve the American Dream of owning your own home. Our company was founded during the Great Depression by our CEO’s father, Harold Webster Smith, who borrowed $25,000 to be able to help his friends and family buy homes. Since then we’ve grown, but haven’t lost that personal touch. We have worked hard to keep people in their homes through the hard times , and welcome these new changes. If you have any questions, feel free to comment below, or send us an email at firstname.lastname@example.org, or reach me directly at email@example.com.