What Are the New Mortgage Lending Requirements?

Posted by Jennifer Dollar on Wednesday, March 12th, 2014 at 8:43am

Mortgage rules are changing. Today's home buyer will need to know what these changes are and how they impact their ability to purchase a loan as well as the types of loans currently available. You may initially think that this limits your buying ability, but in the long term, these changes will help ensure that home loans are safer for many people. Nevertheless, if you are buying a home, you need to know more about these new mortgage lending requirements and be ready for what they mean to you.

Self-Employed

One of the biggest challenges that will affect mortgage lending has to do with the self-employed. The new requirements will require more focus on proving earnings to ensure that the borrower actually has the funds available to maintain payments on his or her loans. In short, self-employed borrowers will need to provide more information and show proof of income in a more detailed fashion than before. This does not mean lenders will not offer loans to those who are self-employed, but that they will require more requirements to be met.

Types of Loans Available

Some types of home loans may no longer be available or may be harder to find. These are high risk loans, meaning that they are more likely to be defaulted on by the home buyer in the long term. To curb that risk, the government hopes to slow the use of these loans. This includes jumbo loans, or those over a certain value (based on location.) To be considered for this loan, your debt payments must be under 43 percent. Interest only mortgages will also be harder to find. These loans do not require borrowers to pay any principal on the loan initially, making them more likely to default.

The changes in mortgage lending are geared towards reducing the risk that the homeowner will default on the loan. The benefit of this type of situation is that it may help to reduce the number of people who face home foreclosures due to the inability to pay. Subpar lending is something that is heading out of the mortgage industry, and that should give homeowners more confidence in the future of lending.

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