Chicago, IL (PRWEB) December 15, 2013
As part of the Dodd-Frank Act, new mortgage changes will take effect next month, prompting many prospective mortgage applicant of The Federal Savings Bank to question how they this will impact the housing market. After a solid year of price appreciation and steady home sales, the new set of rules should be understood by all borrowers hoping to get a low cost mortgage in 2014.
The U.S. Department of Housing and Urban Development recently changed on December 11th, what it defines as a qualified mortgage - or a mortgage that can be backed by the department. The new definition and standard will begin to take effect Jan. 10 next year. Many borrowers are wondering how the change will affect mortgages in 2014.
The new standard will not allow mortgage terms to exceed 30 years and will, for the most part, eliminate risky factors associated with borrowing. Fees and upfront payments may also not exceed 3 percent, though certain loan types may be exempt from this limit. Lenders will also need to be stricter when approving mortgage applications by conducting an analysis of financial information and records.
“The goal of the changes is to set a higher standard for what loan types lenders should be giving to Americans and to move away from short-term, high interest loans” says Nick, at The Federal Savings Bank. He continues “The housing market collapsed in 2008 in part, because of many subprime mortgages, so higher standards could greatly improve the overall health of the economy and prevent another financial disaster.”
The Federal Savings bank found that, of all mortgages that defaulted during the recession could have been prevented by the new regulations that will soon come to pass. Additionally, 25 percent of loans made during that time would not be approved next year. Thus, the bank sees the coming changes as positive for the housing market as well as the volatility of its corrections.
Ability to repay
In an effort to help borrowers avoid defaulting on their loans and maintain the health of the mortgage market, the new regulations also include a stipulation that debt payments cannot exceed 43 percent of household income. However, loans by Fannie Mae and Freddie Mac can have larger debt-to-income ratios.
Contact the Federal Savings Bank, a veteran owned bank, to explore low cost mortgage options.