Qualifying For Home Mortgage In 2019 And New Guidelines

Due to the financial and credit meltdown of 2008, Congress passed the Dodd-Frank Mortgage Reform Act which overhauled the lending and mortgage industry by creating new rules, regulations, guidelines. The birth of new federal regulatory agencies like the Consumer Financial Protection Bureau also known as the CFPB was now the norm.

• The overhaul of the mortgage industry due to the Dodd-Frank Mortgage Reform Act has forced many mortgage companies and mortgage loan originators out of business
• It has set new standards in training and licensing requirements for veteran and newer mortgage loan originators
• Quality Mortgage (QM) was created and implemented
• The old Good Faith Estimate was replaced with the Loan Estimate (LE)

The HUD-1 Settlement Form was replaced with the Closing Disclosure (CD).

New Mortgage Regulations

Many mortgage companies were originating, processing, and underwriting residential mortgage loan and reselling them to lenders.

• The mortgage companies were extremely profitable due to the fact that they were charging upfront charges for originating mortgage loans

Lenders were not too considered on the mortgage loans they were originating to mortgage loan borrowers and the borrower’s ability to repay the mortgage loan back.

FHFA Increases Conforming Loan Limits For 2008

The Federal Housing Finance Agency (FHFA) Increases Conventional Loan Limits to $484,350 from $453,100 effective January 2019.

• This is great news for homebuyers with Conventional Loans
• The FHFA increased conforming limits now for the second year in a row
• The main reason for the Federal Housing Finance Agency increasing Conventional Loan Limits is due to the rise of housing prices nationwide

Normally, when one agency like the FHFA increases loan limits, other government agencies such as FHA, VA, USDA follow. Stay tuned on what the new loan limits for FHA, VA, and USDA will be.

Will Qualifying For Home Mortgage Be Harder In 2018?

The Dodd-Frank Mortgage Reform act has been passed in 2010 to eliminated predatory mortgage lending practices by the mortgage industry.

• The act is being fine-tuned and the Dodd-Frank Mortgage Reform Act of 2010 will make tougher to qualify for a mortgage loan in 2018
• The Dodd-Frank Mortgage Reform Act and new mortgage rules, regulations
• The Dodd-Frank Mortgage Reform Act will make tougher to qualify for a mortgage loan in 2019

Mortgage lenders are required to follow eight checklists in originating and closing a residential mortgage loan to a public mortgage loan borrower.

Debt To Income Ratio In Qualifying For Home Mortgage

A mortgage borrower will need sufficient income and assets to cover their residential mortgage loan payments.

• Income is extremely important and probably the most important factor for lenders to determine and predict whether or not borrowers can make his or her mortgage payments
• Employment history and credit history is a good indicator of the probability of borrowers ability on him or her making his mortgage payments on time and not defaulting on his or her residential mortgage loan

Mortgage lenders rely on the four C’s of mortgage lending which is:

• Capacity
• Credit
• Collateral
• Cash on qualifying and approval a residential mortgage loan

Dodd-Frank Mortgage Reform Act

The Dodd-Frank Mortgage Reform Act is based on the four C’s of mortgage lending:

• The main objective of this act is focused on the ABILITY TO REPAY (Regulation Z under the Qualified Mortgage Standards Under The Truth In Lending Act) the original mortgage obligation from the mortgage loan borrower
• Qualified Mortgage is commonly known as QM

The Capacity in Four C’s refers to the borrower’s gross monthly income and their assets and reserves.

Employment When Qualifying For Home Mortgage

Borrowers need to prove that he or she is employed and that they will be continued to be employed whether as a W2 employee or independent contractor:

• Borrowers need to prove that they have income by providing the sources of regular monthly gross income
• A Borrower’s job is probably the most common way of proving income

Other sources of income are tax returns if borrowers are:

• Self-employed
• Social security income
• Pension income
• Disability income
• Royalty income
• Other income that can be documented

Qualified Income When Qualifying For Home Mortgage

Income documentation and verification is tougher to determine.  If the borrower owns own business or is a 1099 employee or independent contractor, they need to prove to mortgage underwriter that the income will continue for the next three years.

• Also, provide two years of minimum personal and business tax returns

The previous tax returns will prove that the borrower had consistent income and income will continue in future years to come.

Ability To Repay Home Mortgage When Qualifying For Home Mortgage

Borrowers need to prove that they can afford housing expenses including property tax, homeowners insurance, and homeowner association fees if applicable:

• Besides the mortgage principal and interest payments, the borrower has added monthly housing expenses on top of the mortgage payments which are property taxes, homeowners insurance, and homeowner association fees

All of these fees need to be calculated in qualifying the borrower and make sure the borrower can afford it according to the Dodd-Frank Mortgage Reform Act of 2010.

Liens On Property When Qualifying For Home Mortgage

Need to document and factor in any additional mortgage loans and the amount the borrower pays on additional mortgage loans:

• If a borrower has other properties with mortgages or has second, third, or HELOC, these mortgages and loan payments need to be factored in when lenders qualify for borrower’s loan request
• Many lenders did not factor in second mortgages and HELOC mortgages when qualifying for new mortgage loans

Total Properties When Qualifying For Home Mortgage

Mortgage borrowers need to fully disclose any other properties they own:

Fannie Mae and Freddie Mac have special guidelines when it comes to 5 to 10 financed properties. If a borrower is a real estate investor, they may be limited on options with government and conventional loan programs.

• If a borrower owns a vacation home or second home, or investment properties, they need to disclose that

The lender needs to factor in the other properties the borrower owns and their respective expenses into qualification for the new mortgage loan.

Debt And Liabilities When Qualifying For Home Mortgage

Alimony and child support payments need to be used when Qualifying For Home Mortgage:

• Alimony and child support payments need to be fully disclosed and be used as a liability in mortgage loan qualification
• This is already a practice most lenders use but again, it will be mandatory for all lenders and no exemptions can be made

Debt to income ratios will be lowered:

• Debt to income ratios for Conventional mortgage loans is normally capped at 50% DTI
• Many lenders who are FHA insured lenders with no overlays are capping the back end debt to income ratio on FHA insured mortgage loans at 56.9%
• Lenders are most likely be lowering the back end debt to income ratios on FHA loans due to their own lender overlays

I will keep you posted

Credit Scores Versus Credit Payment History

Borrowers will be required to have clean credit and decent credit scores:

Loan Programs have minimum credit score requirements. For example, FHA requires a 580 credit score for borrowers to qualify for a 3.5% down payment home purchase. However, just meeting the minimum credit scores is not sufficient. In order to get an approve/eligible per Automated Underwriting System (AUS), borrowers need 12 months of timely payments and other credit requirements.

• A consumer’s credit scores are one factor that will always be used when a borrower applies for any types of credit
• Lenders expect that you have no late payment history in the past 24 months and no derogatory credit after a bankruptcy and/or foreclosure

Home Buyers needing to qualify for a home mortgage with a lender with no lender overlays, please contact us at Gustan Cho Associates at 800-900-8569 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

This BLOG on Qualifying For Home Mortgage In 2018 Was UPDATED On January 12, 2019