Changes for Mortgages in 2014

Recently I had a chance to ask Jennifer Barth from Vitek Mortgage about the many changes to 2014 mortgage rules. I wanted her to fill you in on the most important things to keep in mind.  I'm so appreciative of her time and expertise. I definitely suggest visiting Jen's website to learn more about her!  

So how will the new mortgage rules affect you?

FHA loan limit decrease: Buyers who need to borrow more than $474,950 (loan limits are county specific) will be unable to use FHA financing and must apply for a jumbo loan. Typically, this means that instead of making a down payment of 3.5%, borrowers will be required to make a more significant down payment.

Ability-to-Repay/qualified-mortgage rule: Borrowers without a lot of debt won’t be affected by this new rule, but those who have a debt-to-income ratio above 43% will find it harder to qualify for a loan unless they can reduce their debt or boost their income. Self-employed borrowers will need to provide more documentation of their income, and all borrowers will be required to provide extensive paperwork to prove their income and assets.

Caps on loan origination fees: Lender fees will be limited to 3% of the loan amount, which means borrowers won’t be overpaying for their loans. However, the cap on fees may make lenders less likely to offer smaller loans.  Another area that could be problematic is if a buyer wants to buy down the interest rate.  Given that fees are limited to 3%, buying down an interest rate may not be possible.

Rising guarantee fees: Lenders are likely to pass on higher fees that they pay to consumers, which will add to the cost of borrowing. That is on top of rising interest rates, which many experts are forecasting will reach at least 5%  next year. While that’s not high in historical terms, rising borrowing costs mean that many people won’t be able to get as much house as they had hoped. Still, some experts see an upside: Higher rates may mean fewer loan applications in 2014. Tight competition between mortgage companies for a smaller pool of applicants could mean that lenders will loosen their standards a little and make it easier for some borrowers to qualify for a loan.

New mortgage servicing rules: Mortgage servicers will be required to provide each borrower with a monthly statement that clearly shows their interest rate, loan balance and escrow account balance and an explanation of how their payment is being credited. Lenders will be required to credit mortgage payments on the day they are received. “Dual tracking” will no longer be allowed, which means that no foreclosure proceedings can be started until a borrower is at least 120 days late and until borrowers have completed a loss mitigation application and it has been addressed by the lender.

Appraisal delivery rules under Reg B and Z:  This rule requires that all appraisals and valuations be provided to the applicant.  Delivery to the loan applicant must occur at least 3 days before closing escrow; this can potentially delay the closing date.  This rule does allow for waivers in certain circumstances.