Last month I touched on the new rules coming out of the lending intuitions. Since financing your home is most often a dreaded part of buying a new home, I believe it is important to understand the new lending rules, and use that knowledge when you apply for your next mortgage. There are a lot of conflicting stories and articles discussing the lending rules. Every situation is unique and one size does not fit all. Knowing the rules and how they may or may not apply to you can help you to feel much more in control of a very stressful business.
One of the basic tenants of the new rules developed by the Consumer Financial Protection Bureau was make sure you can pay back your loan. While most of you who are looking at acquiring a loan have already noticed a slight change, it has mostly been invisible to the public at large. This may seem like an obvious expectation…you need to be able to pay back your loan. It seems that in order to sell loans, many lenders were overly generous in their hopes for payment, making loans to buyers that were not qualified by financial history or income to pay them back. The big term you need to know is qualified mortgage, or QM. If lenders make qualified mortgages, they have more protection against lawsuits should the loans later go bad.
These loans cannot: Contain terms that exceed 30 years, Include interest-only payments or payments that are less than the full amount of interest so that the home loan debt grows each month, Charge more than 3 percent in upfront points and fees for loans above $100,000, Contain balloon payments, Push a borrower’s total debt load above 43 percent of his or her monthly income. There are some exceptions when the debt load can exceed the limit. If the loan is eligible to be backed by Fannie Mae or Freddie Mac, or a federal housing agency such as the FHA, for example, that debt load could be greater.
Then we get this from the Wall Street Journal: U.S. Banks Start to Ease Limits on Lending
A brightening outlook for the country could be enhanced as big banks begin to ease limits on Lending.
1. According to new reports, banks relaxed the criteria for businesses and consumers to obtain credit during the 18 months leading up to June 30, 2013.
2. A limited pool of loans and a sustained low-interest-rate environment has supported this credit thaw, in addition to the rosier economic picture.
3. A decrease on limits in lending is expected to bolster growth projections. The Federal Reserve predicts U.S. growth between 2.8 and 3.2 percent.
4. Banks are offering the following changes to entice customers: Less onerous conditions for corporate borrowers, giving banks fewer tools if a loan gets in trouble, and longer terms for auto loans.
My conclusion to this information is this…Banks will lend to anyone they feel can pay the loan back at reasonable rates of return and with the least amount of loss exposure. Consumers will have more protections against shady lenders driven by these new rules and lenders will be less exposed to loss. Make sure your credit score is at an acceptable level and if you don’t know what it is…check. Start with the lender first before you look for your first home and get pre-qualified for a certain level of expenditure. Then you can go house-hunting with a clearer idea of what you can actually buy. One strong bit of advice (which I was reminded of recently) Just because the lender says you can buy up to a specific amount doesn’t mean you should max out your ability. Leave yourself some comfort zone for the unexpected.
When looking for a loan, talk with your agent or broker and see which lenders have produced proven results within the industry. Try to find a direct and if possible local lenders. They know their specific marketplace and can guide you through the process…personally. There are many great large institutions outside the area that lend, but often leave you feeling put through the mill. You are more than just a number and their livelihood depends on you, don’t lower your expectations!
After many years on the Central Coast I have worked with dozens of lenders and most have been exceptional. I can honestly recommend them and will give you a list upon request. As I have said, every town along out coast is unique and many have different lending options for you. Whether you are in Santa Maria, Orcutt, Nipomo (USDA Loans), Arroyo Grande, Pismo Beach or beyond…there are loan agents ready to talk to you. Give me a call today to discuss any Real Estate need.
Michael Anderson, Broker Associate, ABR, RSPS, BRE #01417114 805-698-3770 Mike@AndersonHomePros.com