No more than 10 days into 2014, significant changes will be made to mortgage lending strategies and the institutions that implement them. Banks of all sizes, in accordance with the Dodd Frank law, must make sure that a prospective buyer can pay back their loan. This, of course, means that banks will become stricter when deciding whether or not a borrower is qualified to receive a loan. With significant changes on the horizon, many consumers may need to reevaluate their acquisition strategy if they want to buy a home in 2014.
Regulations, agreed upon by the Consumer Financial Protection Bureau, will change the underwriting of a qualified mortgage for any loan applications received on or after January 10th. Unfortunately, those looking for a loan may find the new regulations increasingly hard to comply with. In the face of stricter practices, borrowers must improve their chances of mortgage approval if they ever hope to buy a home. Doing the necessary research, improving their credit profiles and meeting the qualified mortgage standards well in advance of filling out loan applications should be a priority.
While the new regulations are beyond consumer control, there are several things potential homeowners can do to prepare for buying a house in 2014:
1.) Ask Questions
Preparation is, without a doubt, the most important step in purchasing a home. However, before you can even think about buying a house, you need to know what you are getting into. With changes in mortgage practices, this may be easier said than done. For potential homeowners who don’t understand what these changes mean for them, there’s an increasing need to ask questions. Familiarizing yourself with loan qualifications will provide you with a solid foundation in which you can start your house hunting endeavors.
The mortgage process is taxing and can be confusing to seasoned investors. First-time buyers, on the other hand, may see the underwriting of a mortgage and not even comprehend it. There’s bound to be something that confuses the borrower, and no one should enter into such a large financial decision with uncertainty. Ask any questions you may have to clear up any ambiguity.
2.) Reduce Debt
While essential on many platforms, debt is a substantial factor in determining one’s ability to qualify for a loan. Therefore, if you have debt, do whatever you can to reduce it. Prospective homeowners, in particular, should be extra motivated to reduce their debt. This, of course, may be attributed to the upcoming mortgage regulations. To obtain a qualified mortgage loan, borrowers must demonstrate that their debt-to-income ratio is 43 percent or less. Debt that exceeds the allotted amount will prevent a borrower from receiving a loan because they are at risk of not being able to pay of the loan amount in full.
According to Joshua Weinberg, senior vice president of compliance with First Choice Lending/Bank, “Not only do we consider the debts that show up on your credit report, but we have to look at debts you may expect to pay in the future.”
Creating a budget is the simplest and most effective solution to ridding yourself of unwelcome debt. However, the severity of your debt will determine the longevity of a budget program. Whether you’re looking to buy a home next year or in two years, make a plan to manage debts now.
3.) Start The Paperwork
As a borrower, you are tasked with providing the required paperwork. This means you must have the appropriate documentation that proves your ability to pay of any loan that you may receive. If you are uncertain as to which documentation you will need, ask the lender processing the loan. Because of the new strict guidelines, borrowers will be required to provide more documentation than ever. Collecting the paperwork is therefore time-consuming and difficult.
“We’re really needing to get a very holistic perspective on the borrower in order to complete the analysis necessary to meet compliance,” Weinberg said.
Hopeful borrowers should also look at their credit scores, and free tools like the Credit Report Card provide scores as well as a monthly breakdown of the things that determine those scores. Not only does this show consumers what areas of their credit profiles need attention, it also prepares them to answer any questions lenders may have.
