Changes in Mortgage Guidelines

Changes In Mortgage Guidelines and Housing Market

The Mortgage Expert,     Publish On: October 24, 2023
Gustan Cho Associates are mortgage brokers licensed in 48 states
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This guide covers changes in mortgage guidelines for the government and conforming loans. HUD, the parent of FHA, has made over 20 changes due to the growing pressure from the Consumer Finance Protection Bureau to abide by the ability to repay rule (i.e., qualified mortgage). As a result, more documentation will be required, and more stringent guidelines will be in place.

Both conventional and FHA loans allow income-based repayment (IBR) to be used as long as the IBR payments reflect on the borrower’s credit reports.

Mortgage rates have increased to the highest rates in history. HUD and the Federal Housing Finance Agency (FHFA) have increased loan limits on FHA and conforming loans due to rising home prices. Many homebuyers have been priced out of home buying during the booming housing market.  HUD and FHFA have increased loan limits for seven years in a row. This further decreases purchasing power when qualifying. Or, you can contact the student loan provider and ask for a full, amortized hypothetical monthly payment over an extended term.

Changes In Mortgage Guidelines On Student Loans 

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The most notable one is the one that will affect first-time buyers the most. If you have student loans and they are deferred, 0.50 percent of the outstanding balance will be counted against the borrower every month on FHA loans. Here is an example: $50k in student loans equals $250 a month in extra debt the banks will assume borrowers have as a monthly debt obligation.

The extended term is normally 25 years. The payment terms need to be fully amortized. So after 25 years, the student loan balance will be paid off. This statement needs to be in writing.

The solution is to provide proof of the full payment or installment agreement between the customer and servicer on FHA Loans stating that the student loan will be paid off at a certain date for a certain monthly hypothetical payment. If this hypothetical fully amortized monthly payment statement over an extended term is in writing, this figure can be used instead of 0.50% of the outstanding student loan balance.

VA Student Loan Guidelines

VA exempts deferred student loans that are in deferment for longer than 12 months. VA requires lenders to take 5% of the outstanding student loan balance on non-deferred student loans and divide it by 12 months. The resulting figure will be used as the monthly student loan payment. USDA student loan guidelines are the same as FHA.

USDA Student Loan Guidelines

USDA Student LoanThe student loan guidelines for USDA loans are identical to those for FHA loans. Deferred student loans do not count. IBR payments can be used. The USDA requires 0.50% of the outstanding student loan balance to be used as a monthly debt when mortgage underwriters calculate debt-to-income ratios on deferred student loans and IBR payments.

Or, you can contact the student loan provider and ask for a full, amortized hypothetical monthly payment over an extended term. The extended term is normally 25 years.

The payment terms need to be fully amortized. So after 25 years, the student loan balance will be paid off. This statement needs to be in writing. The solution is to provide proof of the full payment or installment agreement between the customer and servicer on FHA loans, stating that the student loan will be paid off at a certain date for a certain monthly hypothetical payment. If this hypothetical fully amortized monthly payment statement over an extended term is in writing, this figure can be used in place of 0.50% of the outstanding student loan balance.

Changes In Mortgage Guidelines: FHA Versus Conforming Loans

It is becoming increasingly clear that Fannie Mae and Freddie Mac are opening up their guidelines. FHA is going in the opposite direction now. First-time buyers are saddled with tens, if not hundreds, of thousands of student loan debts. Having them deferred can no longer be the approach banks will look at when accurately assessing debt obligations. There needs to be another option. Too many states restrict what kind of programs a lender can offer. Stated income is prohibited in many states where the crash hit Americans the hardest. If people want programs to open up, they must push local politicians, especially in the state legislature and senate,, to open up lending guidelines with the Attorney General within that state.

Mortgage Rates and Mortgage Market News: Stock Market

Mortgage Rates And Mortgage Market NewsRates have shown signs of dropping as a couple of things occurred in the past two weeks. The Dow Jones is over 35,000. Many experts and economists are expecting a stock market crash like never before. Afghanistan is in chaos due to the Biden Administration leaving without Americans and letting the Taliban take over.

Is the U.S. under the leadership of incompetent politicians? Time will tell. Chinese and European markets continue to show signs of weakening.
The coastlines have already passed the point of bubble return. You now have to compete with cash buyers from other nations, like Northern California, Hawaii, and Seattle, who pay cash and will outbid the average American buyer to get the house. Play the game, but play wisely. It is a fact that Joe Biden and his administration are not competent or the best leaders to run America.

Housing Bubble and Market Correction

The stock market, which relies heavily on European imports, has dropped steadily this past week after an almost unstoppable six-year Mega Bull Run trend. There may be a short-term flight to bonds, even if there are fears that China may liquidate its bond holdings here to raise capital.
There are suspicions that a correction may be in place. As prices continue to rise and rates stay low, if you are confident in the local job market, you may move to another job. I would say look now.
If you plan on being transient and don’t see your state as a 5- to 10-year destination, I would wait or look elsewhere. Regardless, patience may no longer be a virtue, and the clock on affordability may be slowly ticking in some markets. In others, like the Midwest and Southeast, the prices are starting to take off.

Alex Carlucci is an experienced private mortgage banker with Gustan Cho Associates. He has been in the mortgage industry for 20 years, and prides himself of his excellent customer service and communication. Alex has extraordinary customer service throughout the whole loan process, and works very closely with each and every client to give them the best experience. Alex is very experienced and knowledgeable in Conventional, FHA, VA, and Jumbo loans. He is also always up to date with all the constant changes in guidelines in the mortgage industry. Alex credits Finance of America's support team as a foundation for his success. He has built a support team that has earned him an unmatched reputation for accessibility, communication and service to all parties involved in each and every loan.

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