With the New Year upon us, new mortgage loan regulations went into effect as of January 10, 2014.
As a San Diego mortgage broker, I realize that you will want to know how these regulations will impact you especially if you are buying a new home for the first time, thinking of moving from your existing home, or refinancing.
The good news is that the new regulations will not significantly impact the majority of qualified applicants who are seeking to apply for San Diego home loans.
In a nutshell, the purpose of the new rules which have been issued by the Consumer Financial Protection Bureau and approved by HUD is to put a greater onus on lenders to perform a more thorough scrutiny of the financial information provided by prospective loan applicants to ensure your ability to repay the loan.
If you want to get a interest rate quote right away then CLICK HERE. If you need more information about the new regulations and how they will impact your loan application or have some questions about other available San Diego mortgage loans then call me at 619 – 312 – 0612.
What Do the New Home Regulations Entail?
Lenders will now be required to more thoroughly analyze the following 8 factors and provide appropriate documentation when it comes to underwriting San Diego home loans for a qualified mortgage:
- Your current and/or expected income, or assets
- Your current employment status
- Your monthly payment on the covered transaction
- Your monthly payment on any simultaneous loan
- Your monthly mortgage payment obligation
- Your current debt obligations including alimony and child support payments
- Your monthly debt-to-income ratio or residual income
- Your credit history.
Other Features of the New Mortgage Loan Regulations
Some of the other key features of the new mortgage regulations which are intended to further separate prime from sub-prime mortgages include the following:
- One of the key areas for qualified mortgages to be approved is debt-to-income ratio which in the majority of cases must be less than or equal to 43% in order to qualify.
- Qualified mortgages which are backed by the federal government cannot have an amortization period of more than 30 years.
- Qualified mortgages cannot include such other risky factors which include “interest-only” payments or “negative amortization”.
- Qualified loans must limit both upfront points and fees to home buyers and must not be more than 3% of the loan amount, but allow some adjustments for other smaller loans. Certain “bona fide discount points” are excluded for prime loans.
- For adjustable-rate mortgages, the lender will be required to consider the highest interest rate to determine whether the borrower can afford to repay the loan.
- “No-doc” loans will no longer be considered as acceptable for a qualified mortgage.
- Rural Balloon-Payment qualified mortgages would treat certain balloon-payment loans as qualified mortgages if they originate in portfolios held by small creditors operating in rural or underserved areas.
Special Note for San Diego Home Loans
The good news is that for the time being you will qualify for a “Qualified Mortgage” through the GSE’s (Government Sponsored Entities) such as Fannie Mae, Freddie Mac, FHA and VA even with a higher DTI (Debt to Income Ratio) than the mandatory maximum of 43% if the automated underwriting system approves your file.
There is still a possibility to get approved up to 50% with compensating factors. This situation could change, so do not delay in applying for a loan as this might not last.
These new rules will have a larger impact on areas that have higher home prices which can be found in the San Diego area because they will require larger loans. Typically, when qualifying for a larger loan, your debt to income ratio will already be higher because of the larger mortgage payment and higher property taxes.
Also, if you are trying to qualify for a jumbo loan, your file will not qualify for the above exception because your loan will not be through one of the GSE’s. Some jumbo lenders are changing their guidelines to be within the 43%, while others are still allowing a little more leniency.
Impact of the New Regulations on the Self- Employed
If you happen to be self-employed, the impact of the new regulations could be more substantial. In order to be accepted for a “Qualified Mortgage” you will be required to submit a minimum of 2 year’s worth of tax returns. And, if it turns out that your overall income has diminished in the more recent year, you might fail to qualify for a loan.
Lenders are being more conservative with declining income due to the ability to re-pay rule. If they feel your income could continue to decline, they will not be comfortable giving you a new loan.
The Potential Affects of the 3% Closing Costs
You should be aware that although the limitation imposed on 3% closing cost might appear to be a good thing, there is the possibility that it might result in removing some options from you as a borrower. It could even result in adding more complications to the closing of your loan if any of the fees do not pass the 3% test.
How Do The New Regulations Affect You?
As a San Diego mortgage broker, I realize some of you are going to be very concerned about your own particular predicament and whether or not you will qualify.
The majority of qualified home borrowers will only be marginally affected by knowing how to properly assemble the required paperwork and documentation to ensure your loan application is promptly approved with minimal hassle. I can help you prepare your financial documentation beforehand to help make the process smoother as I have a greater understanding of what different lenders will require from you.
One possible drawback is that it might be more difficult to qualify for adjustable rate mortgages (ARMs) because you will have to qualify with either the higher of the note rate or the fully indexed rate. Even now, some lenders are using a note rate PLUS 2% to qualify your new loan.
Others individuals which might be more greatly impacted by the new regulations are those who are borderline in meeting the 43% debt-to income ratio, or those who have experienced previous credit problems, and especially those who are self-employed.
If this applies to your situation and you are having difficulty in getting approval for San Diego home loans, I may also have a greater ability to assist you as I have over 30 lenders that I work with here at The Mortgage Planners.
To get you started right away and find out if you can get pre-approved CLICK HERE.
If you want to speak with me direct, please call me at 619 – 312 – 0612 and I will help you with your San Diego Mortgage Loan questions or application.