Due To Newer Mortgage Regulations, It Will Be Tougher To Qualify For Mortgage Loan In 2014
Due to the financial and credit meltdown of 2008, Congress pass the Dodd-Frank Mortgage Reform Act which overhauld the mortgage lending and mortgage industry by creating new rules, regulations, guidelines, and the birth of new federal regulatory agencies like the Consumer Financial Protection Bureau. 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 and has set new standards in training and licensing requirements for veteran and newer mortgage loan originators.
New Mortgage Regulations
Many mortgage companies were originating, processing, and underwriting residential mortgage loan and reselling them to mortgage lenders. The mortgage companies were extremely profitable due to the fact that they were chargining upfront charges for originating mortgage loans and 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.
Dodd Frank Mortgage Reform Make Tougher To Qualify For mortgages In 2014
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 mortgage loan in 2014.
Dodd Frank Mortgage Reform Act
The Dodd Frank Mortgage Reform Act and new mortgage rules, regulations will make tougher to qualify for mortgage loan in 2014 and mortgage lenders are required to follow eight checklist in originating and closing a residential mortgage loan to a public mortgage loan borrower:
1. A mortgage loan 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 mortgage lenders to determine and predict whether or not a residential mortgage loan borrower can make his or her mortgage payments. Employment history and credit history is a good indicator on the probability of the mortgage loan borrowers ability on him or her making his mortgage payments on time and not defaulting on his or her residential mortgage loan. Mortgage lender’s rely on the four C’s of mortgage lending which is Capacity, Credit, Collateral, and Cash on qualifying and approval a residential mortgage loan.
The Dodd-Frank Mortgage Reform Act is based on the four C’s of mortgage lending and the main objective of this act is focused on the ABILITY TO REPAY the original mortgage obligation from the mortgage loan borrower. The Capacity in the Four C’s refers to the mortgage borrowers gross monthly income and their assets and reserves.
2. A mortgage loan borrower needs 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
Mortgage loan borrowers need to prove that they have income by providing the sources of regular monthly gross income. You job is probably the most common way of proving income. Other sources of income is tax returns if you are self employed, social security income, pension income, disability income, royalty income, and other income that can be documented.
Income documentation and verification is more tougher to determine. If you own your own business or are a 1099 employee or independent contractor, you need to prove to the mortgage loan underwriter that your income will continue and provide two years minimum personal and business tax returns. The previous tax returns will prove that you have had consistent income and your income will continue in future years to come.
3. Mortgage loan borrowers need to prove that they can afford housing expenses including property tax, homeowners insurance, and homeowner association fees if applicalble
Besides the mortgage principal and interest payments, the mortgage loan 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 mortgage loan borrower and make sure that the mortgage loan borrower can afford it according to the Dodd-Frank Mortgage Reform Act of 2010.
4. Need to document and factor in any additional mortgage loans and the amount the borrower pays on additional mortgages
If a mortgage loan borrower has other properties with mortgages or has second, third, or HELOC mortgages, these mortgages and mortgage loan payments need to be factored in when the mortgage lender qualifies for a mortgage loan borrower’s mortgage loan request. Many mortgage lenders did not factor in second mortgages and HELOC mortgages when qualifying for new mortgage loans.
5. Mortgage loan borrowers need to fully disclose any other properties they own
If a mortgage loan borrower owns a vacation home or second home, or investment properties, they need to disclose that and the mortgage lender needs to factor in the other properties the mortgage loan borrower owns and their respective expenses into qualification for the new mortgage loan under the tougher to qualify for mortgage loan in 2014.
6. Alimony and child support payments need to be used in qualifying a residential mortgage loan
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 mortgage lenders use but again, it will be mandatory for all mortgage lenders and no exemptions can be made.
7. Debt to income ratios will be lowered
Debt to income ratios for Conventional mortgage loans will be capped at 43%. Many mortgage lenders who are FHA insured mortgage lenders with no lender overlays are capping the back end debt to income ratio on FHA insured mortgage loans at 56.9%. Due to tougher to qualify for mortgage loan in 2014, FHA insured mortgage lenders are most likely be lowering the back end debt to income ratios on FHA insured mortgage loans. I will keep you posted.
8. Mortgage loan borrowers will be required to have clean credit and descent credit scores
A consumer’s credit scores is one factor that will always be used when a borrower applies for any types of credit. Mortgage lenders expect that you have no late payment history in the past 24 months and no derogatory credit after a bankruptcy and/or foreclosure.