The new mortgage rules went into effect on the 10th of January, 2014. Since this has been the main highlight of the real estate industry, the news has covered a lot of the new rules so you’re probably aware of what the rules are but do you understand the impact they can have on the real estate market? A little difficult, right? This is exactly why I decided to share with you what I’ve learned.
The new rules will be very influential and will bring many changes to the picture of the real estate market and to the home buyer. This is always so whenever the policies are changed, and the same can be said for this time as well. The most prominent effect is probably the rise in fees. Opt for qualified mortgages, and you would not have to bear excessive costs. Go for non-QM products, and the fees can be really large since the laws do not offer much protection to the lenders for such mortgages.
As for the rates, they will also probably see a rise. This along with increased fees might actually decrease affordability for an average borrower. As of now, fixed rates on mortgages comprising of 30 year terms are around 4.6%. Towards the end of 2014 or the beginning of 2015, this figure will probably reach 5%. That is just four decimal points, but do not forget that a single point increase decreases the buying power by roughly 10%. An increase of 0.4%, thus, implies a reduction in buying power by 40%. Now we’re looking at an increase that is better realized now than later.
The new mortgage rules also have limitations on the debt to income ratio which should be at the most 43%. Most of you will have proof of your income and as long as your debts are not excessive, you will not be affected by this clause. However, small business owners may find it difficult to qualify due to lack of proof for future earnings. The same can be said for people whose earnings are seasonal or those who are self employed (1099).
As for the lenders, some of them might be a bit confused initially, but with time, things will soon settle. After all, do not forget that the new rules are aimed at preventing another housing bubble, so their effects are probably going to be positive in the long run.
Source: www.finance.yahoo.com
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