If you plan to buy a house this year, you should know about the new federal mortgage rules that have made it more difficult to overborrow.
The new regulations, which will impact both home buyers and lenders, are intended to prevent the type of housing meltdown that fueled the nation’s descent into recession several years ago.
One of the biggest changes is this: virtually all mortgages that a lender makes must be evaluated based on the borrowers’ ability to repay a home loan. This requirement is in stark contrast to the years of the housing bubble when lenders would approve many borrowers based on teaser rates or without any documentation of their income and assets.
Under the new rules that took effect this month, most loans issued are going to be so-calledqualified mortgages. With a qualified mortgage, lenders must look at a borrower’s income and assets, employment and the monthly payment, as well as related obligations such as a homeowner’s insurance and property taxes. Borrowers must have a total monthly debt-to-income ratio including mortgage payments of 43% or less.
In a plus for consumers, qualified mortgages can’t charge more than 3% of the loan amount in points and fees.
Consumers are less likely to get into financial trouble with qualified mortgages because they don’t offer balloon payments, interest-only features or negatively amortized loans.
To help individuals understand the new rules, the federal Consumer Finance Protection Bureau has rolled out a series of educational materials.
The CFPB has published a fact sheetopens PDF file with an overview of all the new consumer mortgage protections. The bureau has also published a summary of ways borrowers can avoid foreclosureopens PDF file .
The CFPB also offers a tool to help consumers find local housing counseling agencies to answer their mortgage questions.