The qualified mortgage rule was released by the Consumer Financial Protection Bureau in January 2013 as part of the Dodd-Frank Reform Act. It officially took effect Jan. 10, 2014 and specifies the way lenders analyze and verify information from consumers. What is the qualified mortgage rule for Watertown MA home loans is included in this article.
What Is The Qualified Mortgage Rule For Watertown MA Home Loans
The qualified mortgage rule mandates that lenders confirm financial facts of borrowers and to assess their ability to afford monthly payments. First, income and assets must be sufficient to make payments. Additionally, that capability to repay must be considered for the full life of the home loan and not just for a shorter time frame. This is an especially significant factor for loan programs with changing interest rates.
Elements of the Qualified Mortgage Rule
The qualified mortgage rule provides protocol for evaluating the ability to pay, debt-to-income ratio limits, and restriction on points and fees charged. Lenders will be required to use at least eight specific underwriting factors in their analysis. They are:
- Assets and Salary
- Current Employment
- Credit History
- Mortgage Payments
- Monthly Payments on Other Mortgages
- Other Home Ownership Expenses (Municipal Taxes, Association Fees, etc.)
- Additional Liabilities
- Debt-to-Income Ratios
The maximum debt-to-income ratio permitted will be 43 percent. This is actually higher than the previous forty-one percent maximum. Lastly, points and fees must not be greater than 3 percent of the mortgage amount. These guidelines went into effect January 2014.
Loans That Will No Longer Be Valid
As a result of the new regulations, some loans are no longer allowed. These include mortgages requiring no documentation, interest-only mortgages, balloon loans, negative amortization, and loans with terms longer than thirty years. Although these categories of loans account for an insignificant percentage of all mortgages, it did impact specific types of buyers such as those wanting jumbo products.
Reasons for the Qualified Mortgage Rule
The real estate and financial crisis was blamed on common mortgage practices such as offering home loans with risky terms or borrowers obtaining mortgages that were clearly beyond their means to repay. The qualified mortgage rule specifically addresses toxic loan terms. It also reduces excessive fees by lenders. This was intended not only to shield home buyers but also to decrease the likelihood of a future crisis. The above what is the qualified mortgage rule for Watertown MA home loans is offered only as an introduction. To view full details on the qualified mortgage rule, visit the Consumer Financial Protection Bureau website