Every year, we hear different versions of how people get in the web of mortgages and eventually, have to lose their dear possessions. We have some good news for you: the old basic, trap-less mortgage is back.
Richard Cordray of the USA Today has stated that the Consumer Financial Protection Bureau issued the new rules to ensure transparent borrowing experience to consumers. Now, no more going from desk to desk at your bank for the remedy to your mortgage issues; it has all been eliminated.
Mortgage lenders need to abide by two requirements before they lend: Qualified Mortgages and The Ability to repay rule.
Ability to Repay
Ensure that the borrower can afford to repay the full amount, before lending them loan! This can be done by looking at their debt-to-income ratio, which would be the amount they owe divided by monthly income, including the highest mortgage payments required to be made, under the terms of the loan. To calculate their debt-to-income ratio, just need to add up all monthly expenditures as credit card, utility bills and other regularly recurring expenses — and equally distribute it by your monthly gross income.
All necessary documents to prove the above should be submitted and be thoroughly cross-examined.
To make sure one isn’t taking on more than they can afford, general practice is that the debt-to-income ratio must be below forty-three per cent. Given other factors like great assets, banks can still give loans to people whose debt-to-income ratios are greater. Upfront fees and charges cannot add up to more than three per cent of the mortgage balance, including title insurance, origination fees and points paid to lower mortgage interest rates. Moreover, practices like mortgages for long terms interest are eliminated.
The new change is definitely going to slow the loan processes but, in turn, will protect both consumers and borrowers and discourage any ill- practices, which have been going on for decades.