Tag Archives: Mortgages

New Home Loan qualifications and bank overdrafts

New changes to mortgages in 2014 require a lender to judge the borrowers ability to repay.  I like to think that we did prior to this, but when new laws are passed, they always generate new guidelines that supersede the past methods of qualifying borrowers for a home mortgage.

In the past, the presence of overdraft fees in a borrowers bank accounts were left to the discretion on the underwriter.  Now, they are considered a negative factor in judging a borrowers ability to repay the home loan.  Even transfers from a line of credit when done to prevent an overdraft are considered a negative factor in the borrowers ability to repay their home mortgage payment.

Overdraft and Transfer fees can add up to a significant amount of fees in a month.  This in effects becomes a regular monthly debt which can at the least increase your Debt to Income to the point you don’t qualify.  Even if it’s not much, it’s an unnecessary fee that you don’t need to be paying.

What if you have them?  It might be possible to ignore them if  you have a few months of zero overdraft fees or credit line transfer fees.  How to address that if you do have them showing on your bank statements?  It’s sometimes possible to prove to the underwriter that you have changed your ways.  Pre purchasing and budget counseling certificates can prove you have. A letter explaining specific steps you have taken to better manage your money will probably be required as well.

It is definetly more complicated to qualif for a home loan these days, but with proper planning and the willininess to do what it takes, you can get qualified for your next home mortgage.

If you’re in Idaho, and you have questions or want me to look at your situation, call or request a loan pre-qualification at my site.

 

 

More changes to Mortgages this month

On January 10th, new regulations went into effect for residential mortgages.

The “Qualified Mortgage” rule and the “Ability to Repay” rules are now part of the process when obtaining a mortgage.

At first glance, these appear to be major changes to how mortgages are approved but upon further review, it looks like most mortgages already comply with the new rules.  We examined our business the last few years and we estimate that 97% of our loans made would be Qualified Mortgages.  The ones that weren’t were probably commercial or hard money loans from a time when we could broker those types of loans.   As a residential mortgage banker-since August of 2011, we don’t offer commercial or hard money loans.

The Qualified Mortgage rule defines a type of mortgage that can be sold on the secondary market-Fannie Mae and other agencies. This Qualified Mortgage is one where the fees, terms, and features are defined so that in theory, agencies don’t run a high risk when they buy the loans from banks. One of the features is a lender needs to consider the borrowers ability to repay the loan.  This falls into the “DUH, we already do that” category.

Once again, it appears that much to do was made over nothing.  Life in the mortgage business goes on.

 

So what is it, “eaiser” or “tougher” to get a mortgage in 2014 and beyond?

It seem that everyday you see an article from the MSM that says lenders are relaxing their guidelines for mortgages one day and the next, you’ll see another predicting gloom and doom for anyone who seeks a mortgage in the future.   No wonder people don’t know what to believe.

 

If you want the facts, you should talk to a local mortgage professional you trust.  They are the “boots on the ground” and have to deal with the new rules and guidelines everyday.

As someone who has been in the business a long time and seen the massive changes, I will say it will be tougher in 2014 for some people to qualify.  The “qualified mortgage” rule is only one reason why.  The agencies such as Fannie Mae and the big banks like Chase and Wells will react, tighten guidelines and what they call “overlays”, additional rules for their underwriters, on all mortgages they agree to buy from smaller banks and mortgage brokers.  If you got a mortgage a few years ago and seek one in 2014, you will be surprised at how much more documentation is required and how much work a borrower has to do to get their mortgage funded.

That being said, the mortgage market reacted to the meltdown long before Congress passed Dodd-Frank and created the new super agency, the Consumer Finance Protection Bureau.  The CFPB will now regulate almost everything financial in the country and will certainly use its power to justify its existence.

 

I think we can all agree that not everyone is well suited for home ownership, a long-term commitment that requires financial stability and discipline.  The push to make everyone a home owner that started under President Carter forcing Fannie and Freddie Mac to relax guidelines and accept subprime loans into their portfolio did not work.  Our home owner ship rate has fallen back to where it was in the 70’s.  Being a renter is not a mark of a bad person, it’s just a better housing solution for some people than ownership.

 

Bottom line is if you think you are going to seek a mortgage in 2014, gather all your documents and go see a local mortgage lender.  They should be able to tell you in a few minutes if you could qualify and what, if anything else you need to do before you start looking at homes.

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