On January 10 of this year, new federal mortgage rules became effective. These rules were put in place to help bring an end to abusive lending practices which led to the housing crisis and massive amounts of foreclosure. However these new rules bring with them two distinct changes. First of all, now lenders must calculate whether or not a borrower will actually be able to afford the mortgage requested through calculating their debt to income ratio. Secondly, lenders must now provide “qualified mortgages” that assume less risk than an interest only loan, have terms 30 years or smaller and no more than 3 percent upfront fees. For Phoenix buyers, some lenders have offered up tips that will help increase their success in finding a mortgage that fits their needs.
The first step is educating oneself about the area of mortgage and not rely on others opinions of what is best for your situation. “The website consumerfinance.gov has lots of consumer tips on the new rules, but you can get overwhelmed,” said Amy Swaney of Scottsdale-based Citywide Home Loans. “Also, give yourself time to get pre-qualified. Even established homeowners need to take the time to get qualified. Many lenders have gone to very conservative income guidelines that may impact your qualification.” After getting the education in the area you are seeking, be sure to inquire as to having the loan officer put the terms in writing. Reluctance or refusal is a sure sign to explore other options available.
Another aspect that is affected by these new changes is the debt to income ratio. Potential buyers should be aware of what they have to spend, before seeking out a property. “Knowing what your debt ratio is and how much you have to spend will be key,” said Tom Diller of Scottsdale’s Equity Title Agency. “Also, once you start the process do not make any purchases on credit, regardless of how small you think it may be, since a small uptick in your debt ratio could start the whole process over again or you may be turned down.” Hand in hand with knowing ones debt ratio is being up front with your lender about where you stand. Knowing this number and being transparent with your lender is a great way to know the maximum amount one can truly afford when purchasing a home.
The new rules in mortgage lending do not have to put a damper on one’s search for the perfect mortgage. With attention to detail and full disclosure, the perfect mortgage is still within reach.