The qualified mortgage rule was issued by the Consumer Financial Protection Bureau in January 2013 as part of the Dodd-Frank Reform Act. It actually applies starting Jan. 10, 2014 and affects the way companies must qualify and verify facts for customers. An overview of the qualified mortgage rule for Exeter NH mortgages is included in this article.
Overview Of The Qualified Mortgage Rule For Exeter NH Mortgages
The qualified mortgage rule requires lenders to verify financial facts from home buyers and to analyze their ability to afford payments. First and foremost, the income and assets must be enough to make payments. Secondly, the ability to pay must be considered for the entire life of the loan and not merely for a preliminary period of time. This is an especially critical factor for loan programs with adjusting rates.
Components of the Qualified Mortgage Rule
The qualified mortgage rule includes guidelines for assessing the ability to repay, debt-to-income percentage ceilings, and a cap on points and fees. Lenders must analyze a minimum of eight specific underwriting factors to analyze the ability to repay a loan. They are:
- Income and Assets
- Current Employment
- Credit Reports
- Mortgage Payments
- Monthly Payments on Second Mortgages
- Other Property Ownership Expenses (Real Estate Taxes, Association Fees, etc.)
- Other Liabilities
- Debt-to-Income Percentages
Debt-to-income ratios are maxed at 43 percent. This is actually higher than the existing 41 percent limit. Finally, points and fees must not be greater than three percent of the loan amount. All of these rules take effect January 2014 as part of the qualified mortgage rule.
Mortgage Programs Being Eliminated
As a result of the components of the new qualified mortgage rule, some loans will not be allowed. These include loans with no documentation, interest-only loans, balloon payments, negative amortization, and those for payment periods greater than thirty years. Even though these categories of loans represent a minimal portion of all mortgages, it will affect certain groups of buyers such as those wanting jumbo mortgages.
Intention of the Qualified Mortgage Rule
The real estate and financial crisis was credited to negative financial practices such as issuing loans with risky terms or borrowers obtaining loans that were clearly not within their ability to repay. The new qualified mortgage rule specifically addresses toxic loan terms. It also minimizes charges by lenders. All of this is meant not only to protect consumers but also to lower the likelihood of another crisis. This overview of the qualified mortgage rule for Exeter NH mortgages is offered only as an overview. To view more information on the qualified mortgage rule, visit the Consumer Financial Protection Bureau website