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Understanding the New Mortgage Rules for 2014

As of January 1st of 2014, there are numerous new rules going into effect to help people seeking out a mortgage. These rules were specifically set up to protect people seeking new mortgages from the unruly type of lending practices that have been present over the last few years. These rules hold lenders more accountable for their lending practices while setting more new home buyers up for success. Here is a look at some of the new rules potential homeowners should be aware of before looking for a mortgage.

The Debt-to-Income Ratio

In the past, the debt-to-income ratio was always an important aspect of getting a mortgage, but for some lenders, the percentage was more of a guideline than a steadfast rule. With these new rules, lenders cannot give out a loan to someone if their debt levels exceed 43% of their income. This ensures that more people are going to be able to pay back their loans as agreed upon, and fewer homeowners are going to end up underwater with their homes before they are able to pay the loan back.

Lenders Must Be Informative

When going to fill out a loan application, lenders must make sure that their wording is clear and that they are specifically telling mortgage seekers every bit of information they need to understand their loans. This is good to have before signing your name on the dotted line of a mortgage note, and also good to have while paying back the mortgage. If the homeowner knows exactly where his or her money is going from each payment, homeowners are better able to keep track or make additional payments as they can afford it and know exactly where those dollars are going.

More Options when Problems Arise

New homeowners now have more options when they face financial difficulty than ever before. Part of the paperwork new homeowners will see during the mortgage process is the disclosures that lenders must offer should the homeowner fall behind on a payment. Lenders must now respond to a missed payment promptly, and cannot start any type of foreclosure until 120 days after the homeowner missed his or her payment.

New Fees and Limitations

Many lenders went as far as they could in the past to nickel and dime every fee they could out of potential new homeowners. When it came to the many thousands of dollars a mortgage typically dealt with, this meant potential fees that could cross into the thousands of dollars. Now, new homeowners can rest assured that their fees are protected under limitations that were not in place before now. Origination fees are not allowed to go beyond 3% of the total amount of the loan, and guarantee fees are slightly higher, allowing lenders to get guaranteed backing for lower credit qualifiers, opening up their ability to lend to more applicants.

Increased Verification Process

This may seem like a downside rather than a benefit, but this is meant to help keep more consumers safe. There will be a lot more documentation for anyone seeking a mortgage in 2013 to prove debt, income, and repayment ability. While this hassle may not be something a potential home buyer is looking forward to, it is there to protect the home buyer and the lender. Lenders requesting this detailed information have a much greater assurance with this type of documentation that they are dealing with the right person and not some type of identity thief. Plus, lenders will be able to see a much clearer picture of how the potential home buyer will be able to pay back the loan they are requesting. This gives peace of mind, credit assurance to most people, and a greater chance at home buying success for everyone involved.