New for 2014: Will the Qualified Mortgage Rule Make it More Difficult to Get a Mortgage?

The new Qualified Mortgage (QM) Rule went into effect this month. Also known in the industry as the "ability to repay" rule, it is part of the Dodd-Frank Consumer Protection Act, which imposes strict requirements upon banks and mortgage lenders when assessing a borrower's ability to repay a mortgage. The new regulations were enacted to ensure that borrowers will be able to afford their home loans, thereby reducing foreclosures. Lenders must now apply stricter standards than before in predicting a borrower's ability to repay a mortgage.

Some of the stricter guidelines that will affect those applying for mortgages are: borrowers will have to supply more documentation; the loan term will not exceed 30 years; there cannot be negative amortization (monthly payments must include all interest due); no balloon payment loans (where a large portion of the loan comes due at one time); upfront points and fees cannot exceed 3% of the loan amount; and, the allowable debt-to-income ratio [DTI] cannot exceed 43%. (The DTI is the percentage of the borrower's gross monthly income used to pay the mortgage, property taxes, homeowner's insurance and obligations such as student loans, car payments and revolving credit).

The exception to the QM Rule is for first-time home buyers who don't use conventional financing. They typically use federally backed financing like FHA (Federal Housing Admin) and USDA (US Dept of Agriculture) loans. The terms of these loans have not changed and buyers can still borrow at their limits. The applicable DTI for these loans can be as high as 49%.

Mark Nagy of Cross County Funding has a positive outlook on the revamped regulations. "While new guidelines are now in effect related to loan limits, a borrower's debt-to-income ratio, fees and other items, the good news is that the Consumer Financial Protection Bureau (CFPB) estimates that 95 percent of all mortgages made in 2013 already met the new rule. So there's a good chance the new rule won't impact the majority of borrowers."

Our team will continue to monitor the QM Rule's effect on housing prices in the coming year, as we may see prices go down or stabilize due to decreases in the size of mortgages buyers will be able to take on.

Call us at 914.234.4444 with any real estate questions, and contact Mark Nagy, Loan Officer, Cross County Funding to start the process of qualifying for a mortgage mark@ccfmtg.com NMSL# 968910 203-525-0387 direct