The Consumer Financial Protection Bureau’s (CFPB) new Qualified Mortgage (QM) mortgage rules take effect today. The qualified mortgage rule, as defined by CFPB, is designed to create safer loans by prohibiting or limiting certain high-risk products and features.
Here are three key changes to keep in mind when you are considering getting a loan for your home purchase or refinance:
1. Maximum allowed debt to income ratio reduced to 43%. Previously it is 45% and sometimes can go up to 50%
2. These type of loans are no longer accepted: interest-only loans, loans with terms longer than 30 years, balloon loans and negative amortization loans.
3. The points and fees paid by the borrower must not exceed 3% of the total amount borrowed. This will make people have very small loans have less options to get lower rates.
For people who are in Bay Area with high housing price and large loan amount, the reduction on debt to income ratio is the biggest negative impact. So if you got pre-approval last year but still have not purchased house yet, it’s the time to update your pre-approval. Talk to your loan agent to find out if your pre-approval is impacted and whether you need to adjust your loan amount or purchase price. If you would like to have a private meeting with us to review this for you, please feel free to call 408-799-2558.
The mortgages that comply with these rules are purchased by Fannie Mae and Freddie Mac. There are loans that do not need to comply these rules who will be purchased by private investors. However, the non-QM complied loans usually have higher rates.
