In the past, mortgages have been relatively easy to obtain, but it ended up causing financial ruin for many people. Chances are these homeowners didn’t plan to default and lose their homes but it happened. Some situations were just naivety on the part of the buyer who thought if they were approved, they could afford that much house. After all, why would the lender approve their loan if they weren’t a viable candidate? For the first time home buyers, this seems like a logical conclusion but lenders weren’t always as diligent or scrupulous as they should have been. This spelled out problems across the board for mortgages, homes, and homeowners.
The Dodd-Frank Act
This act was passed in 2010 and basically spelled out more stringent rules for a mortgage approval and comes into effect January 2014. It will make it more difficult to qualify for a home loan than in the past and while it can deter potential home buyers, it is designed to help maintain a more stable market.
Ways to Qualify for a Mortgage
While it may seem obvious to the common sense homebuyer, there are people who have attempted to buy more home than they can reasonably afford. Here are some simple ways to know if you qualify for a home with the new standards and moving forward into 2014:
- Your income should be enough to cover the mortgage. The traditional qualifications are being enforced such as available cash, good credit, income capacity, and assets or collateral. The borrower should have sufficient abilities to pay the monthly mortgage payments.
- Employment should be verifiable and deemed stable. If you are self-employed, you should be able to prove the income for at least 2 years before a lender will even consider you as a viable candidate.
- You’ll have to prove that you can afford the property tax and homeowners insurance payments. These amounts are in addition to the monthly mortgage and need to be paid in order to stay in the home. The potential homebuyer needs to know exactly what will be expected of them as far as payments on the property.
- Debt-to-Income Ratio of less than 38% is required for a borrower. The DTI is a determining factor for the mortgage because if the borrower has other bills to pay, they may not be able to make the monthly mortgage, insurance, and tax payments.
- Good credit history and score are two factors most people realize are important but they can make or break the deal. It indicates to the mortgage company just how likely the borrower is to repay the home loan. A low score is usually a red flag for the loan companies as the past behavior is an indicator of their future payment accountability.
While this may seem more stringent, it will actually help to stabilize the housing market and create a brighter future for home buyers and their buying abilities.
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