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Getting a mortgage is about to get harder

New mortgage rules are going into effect Jan. 10 to protect homeowners and investors from the kinds of risky mortgages that led so many people into foreclosure.

By MSN Money Partner Nov 6, 2013 3:16PM

This post comes from Marilyn Lewis at partner site Money Talks News.

Money Talks News on MSN MoneyMortgage reform is kicking in on Jan. 10, bringing significant changes to home loan financing.

The new rules were written by the Consumer Financial Protection Bureau to protect homebuyers from risky mortgages like the ones that led so many homeowners into foreclosure in recent years. The rules also protect investors from buying shoddy mortgage-backed investments.

The downside for consumers is that the rules make it harder for some people to qualify for a home loan. So, if you're shopping for a mortgage or refinancing right now, it's a good idea to close your loan before the end of the year.

In fact, though, many banks and mortgage lenders already are playing by the new rules.

Better borrowers

The Ability to Repay Rule requires lenders to evaluate your financial fitness to repay a loan, even if it's an adjustable-rate mortgage with low payments compared with a fixed-rate loan.

Remember the "exploding" adjustable-rate mortgages sold to buyers who could afford the initial low teaser payments but lost their homes when the interest rates jumped a few years later? And do you recall the "no doc" mortgages, which let you borrow without proving how much money you have or earn? Those days are over.

Now, lenders will have to evaluate your ability to pay back a mortgage based on these points:

  • Your income or assets.
  • Your employment.
  • The monthly payment on the mortgage you want.
  • Monthly payments on your other debts.
  • Monthly payments on other mortgage-related costs (home and mortgage insurance and property taxes, for example).
  • Any commitments for child support or alimony.
  • What's left every month after you've paid your debts. In most cases, your total monthly debt payments can't exceed 43% of your monthly gross income.
  • Your credit history.

Safer mortgages

The Qualified Mortgage Rule defines a category of loans that are safest for consumers. These will be most affordable.

"If you are a borrower getting a qualified mortgage, your loan cannot contain certain features that often have harmed consumers in the past, such as excess points and fees," says the CFPB.

For example, no more:

  • Interest-only mortgages, where you paid for decades without ever establishing ownership in the home.
  • Negative amortization mortgages, which dug you deeper in debt as time went on.

Toy house sitting on money © Vstock, Tetra Images, CorbisThe new rules apply to Fannie Mae and Freddie Mac loans, which make up nearly 70% of all new mortgages, the Federal Housing Finance Agency says.

Winners and losers

Your application will have an easier time of it if you can show paycheck stubs with a steady work history and you file W-2 tax forms. "It gets difficult when you have a history of job changes, job loss or inconsistent income from self-employment," Mortgage Bankers Association president David Stevens told MSN Real Estate.

Wealthier borrowers with lots of savings and investments will have the advantage, qualifying for loan options and prices not available to most Americans. MSN Real Estate says:

(Stevens) predicts that borrowers will need a minimum credit score of about 750 to get a lower-cost conventional mortgage with a smaller down payment. On the other hand, even applications with some wrinkles already have easier sledding with down payments of 20% or more.

The changes make it harder for lower-income borrowers because they're less likely to be able to save for a down payment or to have consistent employment that pays well. And they're more likely to depend on income from other members of the household -- friends or family members under the same roof, making it complicated to apply for a mortgage.

There will be some exceptions to the rules, however, for low- and moderate-income homebuyers working with nonprofit lenders, according to Inman News.

What you can do

  • Move quickly. If your debt load is greater than 43%, consult with several lenders. Find out if you can qualify under the old rules and, if so, if there's still time to get a mortgage closed before the end of the year.
  • Pay down debt. If you can’t move that fast, start paying down your debt so that you can qualify under the new debt-to-income standard.
  • Try other routes. Mortgages insured by the federal government will have somewhat looser requirements. They'll also be increasingly more expensive. If you're having trouble meeting the new requirements, ask your lender whether you might qualify for a VA, FHA or USDA mortgage.

Are you trying to get a mortgage before the Jan. 10 changes take effect? Tell us about it.

More on Money Talks News:

Nov 6, 2013 6:09PM

The CFPB created by DoddFrank Act is going to "protect" the people by alleviating all potential risk involved in the transaction - which is easily done by just excluding a substantial percentage of the population from participating in home ownership - which this does.  Of course, these same people have no upside potential and will forever be renters buying homes for the wealthy.  Talk about the rich getting richer - it will happen by Obama's own design. 


Obama is creating two classes of people, on purpose, and with their approval.


Talk about the Dumbing Down of America. 


Great! Create a system where there is no upward mobility except for those with pre-existing capital.


Philisophically Obama and the liberals want to control the outcome of the game (redistribute points as necessary) rather than create a system equal to all players and then let a person's own committment and ambition control their personal outcome without government interference.  Huge difference.

Nov 6, 2013 5:45PM
Could mortgages be harder to get because lying on applications will disqualify an applicant and credit scores, job verifications and prior years income taxes are now checked? Boy there's going to be some real pissed off home buyers who were counting on  90%/10% loans to buy that dream home they never saved any money for or made any sacrifices to get.
Nov 7, 2013 8:46AM
So I guess it comes down to being responsible, being out of debt, working hard and saving......that will leave out quite a few people won't it......
Nov 6, 2013 7:11PM
I have seen 2 articles today with opposite statements.... easier to get and harder to get.... confusing me fer sure!!
Nov 7, 2013 12:56PM
One of my most negative experiences is talking to bank people. I am not a problem person with a problem background. My credit score is over 800 and I have 150thou in savings and accounts...and yet the conversation always turns to the demands that the bank and the government makes....presented to me by a 25yr old who insists that I present all my deposit records for two years.....I am the customer...and a very good one...The banks seem to assume that everyone is a financial delinquent an is treated as such....I will keep looking for that bank that wants to treat me as a customer....but it is not easy since the gov and the banks are all one big organization. 
Nov 6, 2013 4:37PM
The banks win no matter what. I fought for a received a loan modification on my own back in 2010 after 9 long months of fighting with Wells Fargo Bank. Before 2008, the banks gave everyone and their mother that had a pulse a loan, now they have swung completely in the opposite direction, too far in my opinion, so that it is almost impossible to get a loan. Who doesn't have credit issues after 2008? I am about to sell my home and when I do, I am disconnecting from Wells Fargo Bank. What they put me trhough is just short of criminal, which all banks are.
Nov 7, 2013 4:18PM

I've been waiting for a unit in this very nice townhome complex to come available and one finally did, after a couple years....I've had my realtor auto-monitor it. I was ready to pay full price and a down payment of 20% and more if necessary. My job is secure, I have zero debt, excellent credit score, mortgage payment to income below 15%, but the banks only want cash on this because the rental percentage is too high in the complex, so an investor picked it up to rent it. Hmmm.....they have other loans in that complex already, but they would rather an investor pick it up and rent it out. I didn't strive for years to get out of debt and maintain an extremely high credit score to be turned down because of this. My long track record shows that I'm not going to run away from the mortgage payment.

They wouldn't even look at my credit score, salary or negotiate a higher down payment......just flat no to anyone that doesn't have a cash offer. Investors are going to make a fortune in this market, since they control it now.

Nov 27, 2013 9:52AM

I too see the mixed messages that MSN is sending.  One day they report its easier, the next its getting tougher.  No wonder people don't know what to believe.


If you want the facts, you should talk to a local mortgage professional you trust.  They are the "boots on the ground" and have to deal with the new rules and guidelines everyday.


As someone who has been in the business a long time and seen the massive changes, I will say it will be tougher in 2014 for some people to qualify.  The "quality mortgage" rule is only one reason why.  The agencies such as Fannie Mae and the big banks like Chase and Wells will react, tighten guidelines and what they call "overlays", additional rules for their underwriters, on all mortgages they agree to buy from smaller banks and mortgage brokers.  If you got a mortgage a few years ago and seek on in 2014, you will be surprised at how much more documentation is required and how much work a borrower has to do to get their mortgage funded.


That being said, the mortgage market reacted to the meltdown long before Congress passed Dodd-Frank and created the new super agency, the Consumer Finance Protection Bureau.  The CFPB will now regulate almost everything financial in the country and will certainly use its power to justify its existence. 


I think we can all agree that not everyone is well suited for home ownership, a long term commitment that requires financial stability and discipline.  The push to make everyone a home owner that started under President Carter forcing Fannie and Freddie Mac to relax guidelines and accept subprime loans into their portfolio did not work.  Our home owner ship rate has fallen back to where it was in the 70's.  Being a renter is not a mark of a bad person, its just a better housing solution for some people than ownership.


Bottom line is if you think you are going to seek a mortgage in 2014, gather all your documents and go see a local mortgage lender.  They should be able to tell you in a few minutes if you could qualify and what, if anything else you need to do before you start looking at homes.





Nov 7, 2013 1:37PM
The banks made the loans, wall street cut the mortgages into tiny pieces and sold them, but we, the middle and lower class must now be beaten about the head and shoulders so that this doesn't happen again.  Who can save 40-50K to put down on an average priced home today?  This will also make it difficult for the sellers.
Nov 6, 2013 10:16PM
Totally misleading...none of that applies to any government sponsored loan such as fannie freddie or fha
Nov 6, 2013 8:51PM
when the republicans voted in part D it was horrible.  Seniors were locked in but the insurance companies could change at will whatever they wanted to- stopping coverage on some meds changing the prices.  This is kinda like that but then who is the majority in the senate?  Oh the republicans they look out for big businesses.  This is one reason why I say and will repeat that Obama is a republican because he has only kept in those goofy laws enacted by bush and he is for big business.  I have saw personally different elected officials who could not be elected in their county as the other party so they flop and change.  It's not unheard of and it happens a lot.  Check the way they vote and be amazed.
Nov 6, 2013 4:10PM
Lets blame president Obama! Wait, we blamed him for mortages being to easy, Hmmmm Well lets blame him anyway!
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