When it comes to home buying, the financing stage can often be the most daunting and confusing step. From finding the right lender to keeping up to date on standard rates and regulations, the mortgage climate is always changing and it’s hard to stay current. To bring you up to speed, we worked with mortgage specialist Sheetal Sawhney to highlight some of the most important changes to the rules of obtaining a mortgage in 2015.
#1 - FHA Premiums Drop and New Conventional 3% Down Programs Are Introduced
The FHA (short for the Federal Housing Authority) has provided loans with the help of the government since the 1930’s. FHA loans have typically had the advantage that they are easier to obtain for those with less than perfect credit and require pretty low down payments. The trade-off, however, has always been the multiple insurance premiums-- one upfront and one monthly-- attached to these types of loans.
In January of 2015, the FHA loans’ monthly premiums were slashed by 0.5% making FHA loans more attractive and affordable than ever. In addition, many lenders have now begun offering conventional 3% down payments, making home ownership a reality for a whole new portion of the population.
#2 - Transparency is the Name of the Game With New Loan Papers
When obtaining a mortgage from a lender there are two main times when you will be asked to sign off on the details of the loan you are being offered-- at the beginning of the mortgage process when you are provided with a Good Faith Estimate (GFE) and Truth in Lending statement and your HUD-1 Settlement Sheet when you close on your new loan. Anyone who has ever navigated these forms can attest to the confusing nature of them and spotting changes to the deal made by a lender can prove even more difficult.
This is all set to change this August, when the GFE, Truth in Lending statement, and HUD-1 will be replaced with two new mortgage disclosure forms, a Loan Estimate Disclosure form and a Closing Disclosures form, designed to promote transparency for a borrower from start to finish. In these two forms, you will be able to easily compare the details of the loan you were offered initially and the one you are signing off on in the end. You can check out a side-by-side comparison here.
#3 - Qualified Mortgage Requirements Lower Ratio of Allowed Debt to Income
Last year, the Qualified Mortgage requirements were put into place as part of a larger effort to address lenders’ underwriting policies. One of these requirements will greatly affect the amount that borrowers can receive based on their monthly income, while still putting power back into their hands.
In the past, lenders were able to determine what percentage of a borrower’s monthly income could go towards their minimum monthly debt payments. Many of these lenders set that ratio as high as 60%, but under the new requirements, the government is capping that number at 43%. Further, the onus now lies with lenders to make sure borrowers can indeed repay their loans. If a borrower defaults on a loan where the lender did not follow QM requirements, borrowers will now have the right to sue the lender who provided them the loan. How’s that for accountability?
For more info on how these mortgage rules can affect you, reach out to Sheetal or the Bracha New York team today!