Qualifications for Home loan

New standards for mortgage qualifications that are scheduled to take effect in January will make it harder for those at the lower and upper income levels to receive a loan.

The new standards are part of the Dodd-Frank Act which was passed by congress to decrease the likelihood of another financial crisis similar to the one that occurred in 2008. They effectively change the definition of what counts as a qualified mortgage and will have numerous implications both for lenders and consumers.

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How the New Standards Will Affect Lending

As the standards for what constitute a qualified mortgage increase, lenders will be less able to approve as many home-purchase loans. This obviously means less business which may then contribute to mortgage rates increasing over the coming months.

To give some perspective, in today’s market about 95% of all the loan applications that are put forward are able to qualify under the current standard for what constitutes a ‘qualified mortgage.’ Come January that number may fall to as low as 80%. That’s according to one study from the financial risk-management company ComplianceEase.

qualification standardsOne key aspect of the new rules that will affect lenders is the ability-to-repay rule. This requires the lender to confirm eight aspects of the borrower’s finances with other third parties. But not everyone is likely to be affected equally by these rules. Lenders who give out jumbo loans and loans for those with lower incomes will notice the biggest differences. Most borrowers in the middle income levels won’t notice the impact to the same degree.

How the New Standards Will Affect Consumers

Under the language of the Dodd-Frank legislation, there are four categories of qualified mortgages. It precludes any of the following features from what is considered a qualified mortgage:

• There cannot be upfront fees or points that are greater than 3% of the loan.

• Negative amortization is no longer allowed. “Negative amortization” occurs when the payment required for a loan is less than the interest that is charged on the loan. In other words “negative amortization” allows someone to keep going further and further into debt even if they’re making the minimum payments.

• Interest-only periods are precluded. In other words lenders can’t set up a loan where borrowers are only required to pay for the interest and neglect the balance for some time.

• Loans cannot be approved if they are scheduled for a period longer than 30 years.

• Principals are not allowed to balloon over time.

While many of these are protections designed to help ward of predatory lending practices, it is still the case that they will make it more difficult for consumers to get loans. And that can be either a good thing or a bad thing depending on how you look at it. After all, it’s not the case that everyone who can get a mortgage should get a mortgage.


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Before you start looking for homes...

2011-11-03 15:33:47 by How2SaveYourHome

You should first find out how much of a home you can buy. Far too often people go out looking at homes, fall in love with a house, just to find out they don't qualify. Specially now that lending institutions are getting very strict in their qualifications.
So the first thing you really need to do before shopping for homes is to find a mortgage planner, not a loan officer. There's a big difference. A loan officer just processes loans. A mortgage planner will look at your overall finance and situation... short term goals, long term goals, help fix your credit if necessary, most of the time available 7 days a week even after hours (not a 9 to 5 loan officer), help set you up your down payment, will work with you until you are able to buy, become a family that cares and most...

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ICICI Bank inaugurates a new branch at Indirapuram, Ghaziabad  — Parda Phash
The branch will offer the entire gamut of ICICI Bank products including a comprehensive range of deposits, loans, NRI Services and locker facilities to cater to different customer profiles and needs. Speaking on the occasion Mr.

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