As of the first of the year, there will be new way of doing business in the mortgage industry and new underwriting guidelines for potential mortgage borrowers. The term for this is: qualified mortgage or qualified residential mortgage. You may wonder, well, of course borrowers should be qualified for the mortgage they are borrowing! In recent years, however, the country has seen many people qualify for mortgages that they could not afford. This has lead to a substantial increase in foreclosure rates and thousands of people losing their homes.
The new mortgage underwriting guidelines are geared towards making sure borrowers truly understand the loans they are taking out with all of the related fees, closing costs, loan terms and pay off dates. In the recent past, borrowers would often take out adjustable rate mortgages that started off with very low monthly payments, but then jumped dramatically when the interest rate adjusted to current market rates. This made it very difficult, if not impossible, for many borrowers to make their monthly mortgage payments. These are the kinds of scenarios that the new mortgage underwriting guidelines are intended to avoid.
To this end, the disclosure paperwork that details the costs of borrowing a mortgage loan is being updated to make it more “user friendly” and understandable for the borrower. Additionally, the 97% mortgage loan programs that have been offered by Fannie Mae and Freddie Mac are being phased out. The highest loan-to-value ratios will be 95% at the turn of the new year. The allowable debt to income ratio will also be dropped to 43% on the backside, according to the new underwriting guidelines. This means that a borrower’s overall debt-to-income ratio cannot exceed 43% of his or her monthly income.
The goal of the new underwriting guidelines is to protect prospective borrowers from obtaining mortgage loans that they are likely to default on in the future. Interest rates on residential mortgage loans are also scheduled to increase in January. The new underwriting guidelines will help consumers to understand the true cost of the mortgage loan they are borrowing, so that they can choose a home that they can comfortably afford. However, there will be an allowable grace period in the implementation of these new guidelines, which will allow banks and lenders to develop the programs necessary to meet consumers’ mortgage needs.
For more information on qualified mortgages and why it’s important to take advantage of residential properties in Vegas before the many changes take effect, please contact Jullian Batchelor, top licensed real estate agent in Las Vegas.