What is the New Mortgage Criteria for Las Vegas in 2015?
Some big changes are taking place in the mortgage industry. Because of this, home buyers in the Las Vegas and Henderson will want to get educated before they start their loan process. The Consumer Financial Protection Bureau has put forth regulations that changes how a "qualified mortgage" is defined for buyers who apply for loans this year.
These new criteria helps ensure that consumers are protected from unreasonable loans, while adding stability to the markets. Likewise, secondary markets where mortgages are purchased by government-sponsored enterprises such as Fannie Mae and Freddie Mac, will no longer buy non-qualified mortgages. Since many lenders sell their loans off to be repackaged as securities, they will also be following the new regulations.
In order for lenders to meet the standard of a qualified mortgage, the APR (Annual Percentage Rate) must be within 1.5% of the annual prime offer rate. Secondly the loan must not exceed 30 years. In addition points and fees may not exceed three percent of the loan balance. Finally negative amortization or interest-only payments will not be allowed. By adhering to these rules, the lender becomes exempt from litigation by a borrower who is unable to repay the loan.
There will also be a new set of requirements to determine if a borrower is able to repay their loan, which would be verified by the lender. This includes a thorough analysis of both income and debt. Some consumers who were once able to easily qualify, may find it difficult due to the tighter regulations that have been put into place.
Some aspects of this new legislation may seem confusing to borrowers, especially first time home buyers. It's imperative to find a lender who can help clarify these new laws as you enter the marketplace. Kevin Helm at Guild Mortgage here in Las Vegas does an outstanding job and offers a variety of financing options for buyers.
Debt ratios have always played a significant role in the loan qualification process. Going into 2015 it will continue to be an integral component. Under the new criteria for qualified mortgages, a borrower’s debt-to-income ratio must be 43% or less. That percentage includes the mortgage payment. Not only that, but lenders will also consider potential debt in the future. Examples of future debt would be student loans that come out of deferment or child support payments. It would be prudent for potential home owners to tackle as much debt as possible prior to starting their application process.
Not surprisingly, the ability-to-repay measures will require a little more paperwork from the borrower. A thorough analysis is necessary in order to make sure the buyer is compliant with the new standards. While this may seem like a bit of a hassle, it ultimately serves to protect the loan applicant in the long run.
It’s best to ask as many questions as possible, so you can have an acute understanding of the loan application process beforehand. Knowledge is power, but just as importantly it can put you at ease. The more educated you are, the less uncertainly you will have. Knowing your credit score is also very helpful and gives you time to address any unexpected issues that may arise. All three major credit bureaus (Experian, TransUnion and Equifax) offer consumers a free report annually. Take advantage of that.
With the new changes taking effect next year, borrowers will have more protection and lenders must comply with the new criteria. Hopefully this will create a strong foundation for the Las Vegas real estate market as we move forward.