2014 Mortgage Regulations

HOW WILL THE NEW 2014 MORTGAGE REGULATIONS IMPACT A BUYER’S ABILITY TO GET FINANCING AND WHAT WILL HIGH CREDIT SCORES DO TO HELP OFFSET THE LOSS OF A BUYER’S PURCHASING POWER?

As of January 10, 2014 the new mortgage regulations will further restrict debt to income ratios for those purchasing real estate and looking for mortgage financing. These ratios will be reduced which can lead to diminished buyer borrowing power and cause lowered loan amounts offered by banks as well as more rejections. Lenders will become legally liable/open to law suits if they extend financing to those who do not fit into the new regulations and wind up defaulting on loans. According to Compliance Ease, a leading provider of intelligent business solutions to financial services institutions, who did a test trial of the new regulations in 2013, one in five current mortgages would not qualify under the new rules.

With the combination of rates increasing and tighter regulations on financing, buyers will need to prepare their proof of income, debt to income, and the best credit scores possible well in advance if they want to achieve their financing goals. It is not just about getting loan approval but also qualifying for the right amount of mortgage needed and the best pricing. As a professional, teaching potential clients and referrals about these challenges will cause less disappointment/frustration, more success, and savings of hundreds of thousands of dollars for the real estate transaction or refinance.

With the appropriate income, debt to income ratio, and a credit Fico score above a 740 threshold borrowers can qualify for the best pricing. This could mean a savings of 1% or more in interest over the life of the loan which could increase the buyer’s purchasing power. Saving 1-1.5% in interest on a $800,000 loan comes to over $400 a month in savings and almost $200,000 over the 30 year term of the loan. As you can see having a better credit score is a way for buyers to gain more purchasing power in this highly restricted mortgage environment. To achieve the best credit scores individuals must order, analyze, and improve credit well in advance of loan application.