You may have heard about the Dodd Frank bill that was passed in the aftermath of the Banking Crisis in 2008. The goal was to put regulations in place that would prevent a similar meltdown from occuring again.
Among the major contributors to the financial crisis were Home Lending practices that enabled almost anyone who could walk, breathe and hold a pen to get a loan. Starting January 1, 2014, certain provisions of the bill that will make it harder for home buyers to get home loans will come into play. From what we hear from mortgage brokers we know, this will particulalry affect buyers who don’t have stellar qualifications. If you have great credit, strong debt to income ratios and the like, things may be much the same as they are today.
The legislation establishes the latest financial acronym….QRM….for Qualified Residential Mortgage. To get a QRM, you need the good qualifcations. If you don’t qualify for a QRM, then the banks are forced by the legislation to carry the equivalent of 5% of the loan value in reserves. Ouucch! As you can imagine, banks will make the borrower pay for this by charging higher interest rates, fees and what have you. We’ve pasted a good article which explains this in more detail below.
Bottom line, if you’ve been thinking about buying a house, and you’re on the borderline for qualifying, it would be wise to buy before years end. It’s also a good idea because the market is slow at this time of year and you may get a better deal now than in the New Yeaer. And, of course, rates are still low and they’ll be headed up next year.