Historically low interest rates have prompted many new buyers to look into getting a mortgage. It is important to remember; however, that there are many extra steps that buyers need to do in order to get qualified now. A high rate of loan defaults and foreclosures have prompted changes in lending regulations. These regulations are enforced to protect buyers from predatory loan practices, yet many buyers are finding more challenges that block them from getting the loan they want. To avoid difficulty in getting a loan, plan ahead and address these issues with your mortgage broker.

More Documentation is Required

Documentation is important to the loan process and is required by the Consumer Financial Protection Bureau. The documents lenders request will help them assess your ability to repay the loan over several years. Lenders will request documentation that projects your income, assets, savings and debts so that they can compare this to your potential loan payments. Federal regulations no longer allow for no-doc or low-doc home loans. This means that you will need to prove all of your information is correct, rather than simply telling your lender it is. Be prepared to provide more paperwork in order to show your ability to pay.

Lower Loan Amounts

In order to see if an applicant will be able to take on a new loan, the underwriter will need to look at many different factors. They can no longer judge a person’s ability to pay based on a low introductory rate. Instead, they need to use the highest interest level on the loan during assessment and it cannot push them past a 43 percent debt to income ratio over time.

Qualified Mortgages

Federal regulations have also introduced the idea of a QM, or qualified mortgage to the marketplace. This concept helps to eliminate creative liberties taken during loan development. This means that buyers may not qualify for the loan they originally wanted because the terms are no longer compliant. Some terms that are banned by federal regulations include interest-only payments and loans that are longer than 30 years.

Potential home buyers should expect to see more paperwork when they apply and may need more money in order to get the loan they want. Regulations no longer allow for you to pay higher fees or take out loans over a longer period of time. Banks may offer you loans using older concepts, however, these loans do not have any legal backing. Nearly 90 percent of the loans you see will abide by federal regulations.

In order to see if you are qualified for a new loan or to get more information on the buying process, please contact a local mortgage broker today.