It’s been a great 2013; home sales are up, prices are increasing, and mortgage rates are staying relatively low. But, 2014 is showing signs of unique changes not only in the real estate market especially in the mortgage world.
Here’s what you need to know about changes in the real estate and mortgage industry.
New changes on qualifying mortgages.
Qualifying mortgages cannot have interest-only periods, cannot have negative amortization, cannot exceed 30 years and cannot have a balloon payment at the end of the term. The only exception is for those living in a rural or under serving areas.
Over the last 2 to 3 years, low income and distressed borrowers have had it easy. Finding a mortgage or loan, especially if you’re a first-time homebuyer, has been easy with lots of options when it comes to down payment or closing cost assistance programs, zero to low down payment and even being able to apply for a loan than two years after a short sale or foreclosure. The types of borrowers may find it more difficult to apply for a home loan. On the other end of the spectrum, those that are self-employed or do not have a steady flow of income may find it more difficult to prove their income and have to jump through more hoops in order to apply for a home loan.
The debt to income ratio is decreasing.
The debt to income ratio has been 50% which is relatively high. This debt would include a mortgage payment, any car loans or student loans, credit card debt, and any other secured or unsecured loans. This percentage is dropping to 43% as of January 1, 2014. That may mean several borrowers will either need to bring their debt to income ratio lower or wait to purchase a home.
The new “ability to repay” rule.
This is a new loan category for qualifying mortgages and will have the biggest effect on self-employed individuals. Those who are self-employed often have uncertain, seasonal, or fluctuating income. Lenders are often hesitant to lend to these individuals.
So what does all this mean for new homebuyers in 2014?
“Unless the applicant can demonstrate stable or increasing income, his or her chances of obtaining a mortgage may be poor. Under the new rules, it’s unclear whether and how much leeway lenders might have two make business decisions about making loans.”
My suggestion is if you plan on buying a home do so before the end of the year. We will have to wait and see how these new mortgage plans play out in January. [Source]