New rule requires proof of buyer's ability to repay.

If lending can't get anymore difficult than it already is. (sigh) I suppose all these new requirements and rules are for the welfare of the real estate market and the borrowers. 

Announce today, the Consumer Financial Protection Bureau stated that after January 10, 2014, lender will be required to verify a buyers ability to repay.  Under the rule, lenders will have to determine if the borrower has the financial means to pay both the principal and interest on the new mortgage over the long term.  

To determine the borrower's ability to repay, there will be eight underwriting criteria.

1) current employment status - today, underwriter look at your past two years of employment

2) current income and assets - today, it's the past two years of income taxes document straight from the IRS.

3) current debt obligations - credit check

4) credit history

5) monthly payments on the mortgage

6) monthly payments on any other mortgages on the same property

7) monthly payments for other mortgage-related obligations, such as property taxes

8) monthly debt-to-income ratio or residual income the borrower would be taking on the mortgage

A qualified mortgage prohibits:

1) excessive points and fees tacked on to upfront origination costs.  

2) risky loan features such as a term that exceeds 30 years

3) interest-only payments that don't pay down a mortgage's principal

4) negative amortization payments where the principal amount increase

5) no balloon payment at the end of the loan term except, under certain circumstances, made by smaller creditor in rural or underserved area

6) the borrower's debt-to-income ratio (total monthly debt divided by total monthly gross income) cannot exceed 43 percent

What about government-backed loans?

For now, there is an temporary exemption for government-backed loans where the debt-to-income ratios is above 43 percent will be considered qualified mortgages if they meet underwriter requirement of Fannie Mae, Freddie Mac, HUD, VA, USDA, or rural housing service.

More information regarding this new rule will come throughout this year.  It does make a good argument of now is the time to refinance, sell, and buy a home this year.  With housing prices and rental prices already on the rise and a multiple offer being more common....now is a good time to buy.  As a renter, this news allows me to prepare my finances for the new rule. 

For more information about this new rule and all rules applied in 2013, click here.

For information on your local market in the San Fernando Valley or Westside, contact me.