When you apply for a mortgage you may wrestle with deciding how much you can afford to pay. Your lender can help you with this decision, and as of Jan. 10, 2014 the Consumer Financial Protection Bureau’s Ability-to-Repay/QM rule requires lenders to look at a consumer’s financial information and be sure that the consumer can afford to repay the loan before making a mortgage.
I spoke with Gabe Bodner of RPM Mortgage to hear more about about the Qualified Mortgage (QM) this week and how the rule may affect buyers in the Silicon Valley home buying market.
More information on Qualified Mortgage loans
The FHFA (Federal Housing Finance Agency) has stated that beginning Jan. 10, 2014, Fannie Mae and Freddie Mac will no longer purchase a mortgage that does not meet the “ability to repay” provisions. These provisions state:
- The loan must be fully amortizing (no interest only loans)
- The loan term cannot be longer than 30 years
- The loan must not have points and fees in excess of 3% of the total loan amount
Additionally, the FHFA has stated that a loan will not be a QM loan if the debt-to-income ratio is greater than 43%. These limitations by Fannie Mae and Freddie Mac are based on FHFA’s goal of “protecting” borrowers.
However, don’t be alarmed, we certainly expect that there will still be banks and lenders (like RPM Mortgage) who will offer loans that don’t conform to the QM standards. We expect there will be many options available for non-QM loans but these loans will simply not be purchased by Fannie Mae or Freddie Mac nor will they have the protection of QM.
According to the National Association of Realtors®
“Borrowers will still be able to get a private loan as long as the loan does not have risky features and the borrower’s total debt to income (DTI) isn’t over 43%. This means that a borrower’s total debt expense (including total mortgage payment) does not exceed 43% of their gross income (before taxes are withheld). These loans will still receive the QM safe harbor protections.”
Read their full summary here.
As always, if you have any questions about real estate just give me a call at 408.406.6035. I’m here to help.