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<>Ben Lucero discuss new Loan Limits coming this January.
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Tuesday, 14 January 2014 00:00

Qualified Mortgages 2014

By now, most people have probably heard murmurs about changes in mortgage lending starting this year. What most consumers are concerned about is called QM or the Qualified Mortgage. A QM requires lenders to determine a borrower’s ability to repay. Gone are the stated income, no doc and negative amortization loans. Most of these loans have gone by the wayside anyway, but now it’s the law.

To qualify for a QM the borrowers must have a debt ratio equal or less than 43%. Previously, the ratio has been 45% for conventional loans and could be much higher on FHA and VA loans.  Believe it or not, this new lower debt ratio of 43% will knock many borrowers out of qualifying. Purchase pre-approvals are now more important than ever for certain borrowers to qualify under the new QM rules.

One other part of the rule states that all lender fees, including origination and discount fees, cannot exceed 3% of the loan amount. This 3% does not include title fees, appraisal and pre-paid interest or escrow holdbacks, just lender fees.  This 3% rule will indeed help borrowers from getting put into higher cost loans.

So what happens if a borrower’s debt-to-income ratio exceeds 43%? Lenders can break the QM 43% DTI rule if they can determine that a borrower has mitigating factors to strengthen the loan. Mitigating factors are high credit scores, plenty of assets, lower loan to values, etc,. Most lenders will be very wary of giving out a loan with the DTI higher than 43% regardless of mitigating factors, but as time goes on we will probably see that limit loosen up a bit.

If you think you may qualify for a QM loan or need clarification on any of the other changes that 2014 has brought, call Indigo Mortgage. We’re here to help!

Published in Blog

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