Will qualified mortgage rule slow housing market next year?



Things are going to change next year, maybe for the better — maybe not.

Starting Jan. 10, the Consumer Financial Protection Bureau (CFPB) will put into effect their new "ability to repay" mortgage rules.

Here are some aspects of those new rules that will definitely affect borrowers beginning in 2014:

1. The maximum debt-to-income ration will be 43 percent of total debt as a share of pre-tax income.

Buyers with ratios above this won't qualify for any loan.  This will have a major impact on borrowers in lower price ranges, the majority of which are typically in the range of 50 percent debt-to-income. Also, home buyers who want to buy and move before selling their current home will likely be impacted by the debt ratio requirements.

2. Jumbo loan borrowers may get hit two ways

According to CoreLogic 9 percent of all jumbo loans made in 2012 were to borrowers with debt-to-income rations above 43 percent. Additionally, 14 percent of jumbo loans had an interest-only component. With the new mortgage rules, interest-only loans are gone.

3. 5/1 ARMS will disappear

Why? Because for all loans where the rates change within the first 5 years, homebuyers will have to qualify at the highest rate the loan could reach. Using today’s rates that could be in the 9 percent range.

4. Self-employed borrowers get hit again

Let's face it, it's already difficult for a self-employed borrower to get qualified, the documentation required is lengthy and repetitive. It's going to get even harder under the new rules.

So, check your ratios. For some prospective home buyers out there, now might not simply be a great time to buy, it may be your only time to buy.

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