Mortgage Reform Adds Protection and Restrictions for Buyers

Financial authorities within government agencies, such as the Consumer Financial Protection Bureau are attempting to learn from the past. As a consequence of the 2008 housing bubble collapse, new mortgage reform will take effect on January 10^th, 2014. These reforms are meant to prevent a dangerously high number of foreclosures and short sales. New mortgages require lenders to be a bit more discerning regarding the creditworthiness of potential home buyers.

While such initiatives may work to protect the overall economy, they might also create obstacles that those hoping to buy a home will have to work around when seeking financing. The first step to overcoming these obstacles is becoming familiar with the projected changes.

It’s important to understand that mortgage reform is intended to benefit everyone, and it will help prevent lenders from taking advantage of home buyers through predatory lending practices. Below are some of the changes that are new this year:

• The borrowing limit

The most significant aspect of mortgage reform is that mortgage holders cannot borrow more than 43% of their income. This means that you cannot be subject to a monthly mortgage payment that is more than 43 percent of your monthly income before taxes.

• The “qualified mortgage”

Mortgage loans offered by lenders in 2014 and after must meet requirements to be considered “qualified” mortgages. The concept of a “qualified” mortgage involves meeting several different regulations. Regulations include limiting fees and points on a loan to 3 percent or less of the total loan amount. Lenders must also discourage risky loan practices such as offering a loan with a life of more than 30 years.

• Monthly billing statements

While credit card companies have always had to exhibit more transparency than mortgage providers through detailed monthly statements, this will change in 2014. Mortgage lenders will be required to send out statements that detail a variety of different factors. For example, what part of each loan payment goes to escrow as opposed to the principal must be disclosed. Statements must also show any fees included for service or transaction costs.

• Notification of interest rate changes

If interest rates change on any type of mortgage loan the borrower will have to be notified 210 – 240 days beforehand. Further notice must be given 60 – 120 days before the new payment amount is due.

If you’re interested in buying a house this year, contact us if you would like to begin your search or be put in contact with our recommended lenders for pre-approval.