5 Common Questions About The New Qualified Mortgage Rules
Are you familiar with a Qualified Mortgage (QM) and the new rules surrounding QMs? If you are planning on buying or refinancing a home in 2014, it’s important to understand how the new mortgage rules may impact you. Here are five frequently asked questions about the new Qualified Mortgage rules:
- Who Created Them and Why?
The new mortgage rules were established by the Consumer Financial Protection Bureau (CFPB) and went into effect on January 10th. These guidelines and regulations were designed to provide greater safeguards and information to borrowers, and to prevent buyers from getting into loans they can’t afford.
- What Is A Qualified Mortgage?
Under new federal mortgage regulations, lenders are required to verify that borrowers have the ability to repay their loan. The ability-to-repay rule says, before issuing a loan, a lender must assess and document a potential home buyer’s income and assets, employment status, credit score and other outstanding debt levels . A Qualified Mortgage is presumed to have met the ability-to-repay requirements, along with a number of other affordability criteria.
- What Do The Qualified Mortgage Rules Mean For Borrowers?
Lenders will have to take a closer look at your debt obligations before you can secure a loan. Therefore, borrowers may need to provide more documentation to prove they have the ability to repay the loan they are requesting. This can mean increased time to process and evaluate certain mortgage applications.
- How Much Income Will I Need To Qualify?
Under the new mortgage rules, potential homebuyers will need to have a debt-to-income ratio of less than 43% to qualify for a Qualified Mortgage. That means that when you add up mortgage payments, taxes insurance and other debt like credit cards or car loans, that debt total has to be less than 43% of your annual income.The goal is to make sure borrowers can afford their mortgage.
- Are These New Rules A Benefit To Me?
Yes, the purpose of the new rules is to make the loans that are offered safer, with fewer surprises. Qualified Mortgages prohibit loans with negative amortization, interest only payments, balloon payments or terms exceeding 30 years. Another benefit is limits on some of the costs involved in getting a mortgage. Now, the amount of points – fees or prepaid interest on a mortgage – can’t exceed 3% of the loan’s value.
