Posts Tagged ‘maximum debt to income ratio’

Proposed change to Qualified Mortgages

February 12, 2020

<<<For the history of Qualified Mortgages, see last week’s post.>>>

With 2021 right around the corner and no changes to Qualified Mortgages, the 43% maximum debt to income ratio cap is coming soon as the QM Patch provision is running out. The Consumer Financial Protection Bureau (CFPB) doesn’t want this to happen. What to do?

The CFPB definitely wants to keep Qualified Mortgages. The issue with the 43% debt to income cap is qualifying for a home. It is no secret housing values are continuing to rise – especially in metro areas. Also, student loan debt climbed unexpectedly since 2014. In fact, student loan debt is roughly 33% higher today than it was in 2014 (in terms of outstanding student loan debt).

Forcing the debt to income ration max to 43% (down from 50% on Conventional loans and 55% on FHA loans) would drastically impact those looking to qualify for a home loan. This is especially true of Millennials who carry the vast majority of the student loan debt.

To prevent this, the CFPB is proposing to eliminate the 43% hard cap requirement as they feel other measures can be introduced to take its place. The CFPB also proposes an extension to the QM Patch until the new provision gets implemented.

In other words, the CFPB agrees QM loans have been a good thing for the housing industry while also ensuring financially responsible loans that consumers must document they have the ability to repay. With foreclosure rates at a fraction of what they were during the crash and lower today than when QM loans were introduced, it is hard to argue.

As of this post, there is not a firm next step for the QM Patch expiration and the 43% debt to income ratio implementation. It is still set to start in 2021. This said, with the CFPB already proposing changes, it seems something will happen to ensure no harmful impacts happen to those looking to purchase a home.

Still concerned about the QM Patch expiring and how it could impact your ability to purchase a home? Contact me today. I’ll be happy to walk with you through the journey. If you are buying a home in the state of Georgia, I’m even happier to help you with the purchase!

The history of Qualified Mortgages

February 5, 2020

Six years have passed since the Consumer Financial Protection Bureau (CFPB) introduced Qualified Mortgages and the term “ability to repay.” For a loan product to be considered a Qualified Mortgage, it needs to:

  • not have excessive upfront points and fees
  • no “toxic” loan features (such as interest only, negative amortization, prepayment penalties, and balloon payments)
  • fully documented ability for the borrower to be able to repay the loan
  • maximum debt to income ratio of 43%.

The final item in the list drew the most attention. In 2014, the country was still recovering from the housing crash. Foreclosures rates were still high, and there were plenty of short sales. The CFPD didn’t want to introduce rules to hamper the housing recovery, yet standards needed to be set to ensure 2008 didn’t happen again.

The first three items in the list were obvious – especially the third item and the “ability to repay.” Loan products such as “stated income” and “no documentation” helped pave the way for the foreclosure crisis.

Making the maximum debt to income ratio at 43% also seemed logical too. The idea with the cap was to prevent home buyers from getting overextended with their debt. Again, logical as this was part of what led to the housing crash.

To prevent the debt to income provision from hampering the housing recovery, a “patch” was put into place for Fannie Mae, Freddie Mac, FHA, and VA loans allowing the 43% cap to be exceeded. The QM Patch would last seven years, and we’d see how Qualified Mortgages impacted the industry.

That was 2014… it is now 2020… so the QM Patch is coming to an end in 2021. How will this impact home buyers? Find out more next week.

Looking to buy a home in 2020? Concerned about how much home you could purchase? Think student loan debt will prevent you from owning a home? It probably won’t. If you are looking to buy a home in the state of Georgia, contact me today to find out exactly how much home you can afford!

Loan Guidelines Easing

November 19, 2013


I know what you are thinking from reading the title to this post… “really?!? After 3% down conventional loans have gone away, you are saying loan guidelines are easing?”

Yes. Yes, I am. It is true that the minimum down payment for conventional loans is now 5%. That said, guidelines have eased in two other areas.

Credit Scores – home buyers can now qualify to purchase a home (or refinance a home) with as little as 5% down and a credit score as low as 620. Depending on a lender’s guidelines, most stopped offering conventional loans with less than a 20% down payment to borrowers with credit scores under 660. That is no longer the case.

Whether a 5%, 10% or 50% down payment, buyers can now qualify for a conventional loan with a credit score as low as 620.

Debt to Income Ratios – while Automated Underwriting might approve someone with a debt to income ratio of 51%, most lenders stopped these ratios at 45% if mortgage insurance was required and 50% if no mortgage insurance is on the loan. Not anymore.

Regardless of the debt to income ratio, as long as you get Automated Underwriting approval on loans that do not require mortgage insurance, you can move forward with the loan application to buy a home.

The minimum down payment for conventional loans has increased to 5%, but recent changes to the minimum credit score and maximum debt to income ratio will make it easier to qualify. Want to know how this could impact you? If the property is in Georgia, I can help. Contact me today to get started.