New Lending Rules Might Make It Easier for Consumers to Obtain Mortgage Loans

Consumers have new reasons to smile if they’ve not yet qualified for a mortgage. Some recent changes to mortgage lending rules now make it a little less difficult for debtors to gain approval. Before these changes, lenders issuing qualified mortgage loans had placed caps on their applicants’ debt-to-income ratio. Mortgage applicants who had DTIs of more than 43 percent were unable to obtain loans, even if they could prove that they had been successfully and consistently paying rent that was higher than the prospective mortgage amount for many years. The DTI cap lending rule has now been removed.

Prospective lenders will take their focus off of an applicant’s DTI and now place it on the average annual percentage rate of the loan and how it compares to the average rate that qualified buyers have. The Consumer Financial Protection Bureau feels that using this method is a more “holistic” approach to mortgage lending.

The other rule prohibits lenders from using practices such as signing their applicants for agreements that include balloon payments or interest-only payments. Those practices were a huge problem during the mortgage crisis, and the CFPB wanted to ensure that borrowers would have protection in this area.

One thing that will not change in mortgage lending is the lender’s responsibility to collect the necessary documentation from all applicants and ensure that each applicant has the means to repay a mortgage loan over the course of the agreement. Applicants will still have to produce income documentation that shows a consistent income for at least the past two years. Applicants will also need to show a history of making timely debt payments and housing payments. That documentation will make prospective lenders feel much more comfortable approving qualified loans, and it will lessen the chance of new borrowers defaulting on their mortgages.

Contact one of our loan consultants to learn more.