What’s in Store with the New Qualified Mortgage Rule?

bankThe beginning of 2014 may prove to be interesting when applying for a single family home mortgage. Starting January 10th, the “Qualified Mortgage Rule” goes into effect for loans insured, guaranteed or administered by HUD or the Federal Housing Administration.

HUD’s new rule, which is similar to the rule issued by the Consumer Financial Protection Bureau in 2013.

Loans now must:

  • Require periodic payments without risky features;
  • Have terms that do not exceed 30 years;
  • Limit upfront points and fees to no more than 3 percent with adjustments to facilitate smaller loans (there are a few exceptions, such as for manufactured housing);
  • Be insured or guaranteed by FHA or HUD.

The first two have been in place for some time, and the latter two points have been consistent to what private-sector and conventional mortgages guaranteed by Fannie Mae and Freddie Mac currently require.

The National Association of REALTORS® issued a Summary of the New Qualified Mortgage Rule (QM) last January 2013.

Here are a few things to note from the Summary:

Private Loans: Private loans can still be issued as long as the the loan isn’t “risky” and borrower’s total debt to gross income ration isn’t over 43%.

Seller Financing (for those sellers who “carry” the contract for financing) does not qualify under the Qualified Mortgage Rule.

Balloon loans for Homes in Rural Areas. Due to the fact many rural properties may lack the number of comparable properties, “the rule allows unlimited balloon payment loans to be made in rural areas. This flexibility will allow lenders in rural areas to continue to serve their communities.”

Also, small community lenders also have greater flexibility in rural areas.

Jumbo Loans. The Qualified Mortgage rule could impact Jumbo Loans in the future. “Jumbo loans are loans above the dollar limits that Congress sets for the GSEs and FHA. The limit for Fannie and Freddie is currently any loan greater than $417,000 and $625,500 in high cost areas. For FHA, it is any loan above $729,500.  The biggest area of concern with regard to the underwriting standards for QM will be jumbo loans with DTI in excess of 43 percent.  Although loans with these characteristics represent a relatively small percentage of the market, the new QM rule could affect lending in some high cost areas.

How will this affect getting a home loan?

According to Bloomberg Businessweek, the states which haven’t bounced back strong will feel the pinch the most; and borrowers trying to get an adjustable rate mortgage to just get into a home (hoping to “grow” into their mortgage).

Now, more than ever, you need a professional to help you with the buying process in the Cedar Rapids area. I am committed to fast, professional and courteous service to help you understand and feel at ease throughout the home buying process – including financing. Contact me today to find out what your options are!

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