Getting a mortgage these days requires a whole bunch of paperwork. The purpose is to prove that everything you say on your loan application is true. Did you make that income last year you claim? What is your bank balance— really? Can you prove you actually paid off those student loans?
Well, hold on to your tidy-whities.
Effective January 2014, lenders will be required by new federal mortgage lending rules to get even tougher about you proving your income, credit and debts.
It begs the question, what’s next? Are they going to come over to your house and look in your underwear drawer?
The New Lending Rules: Qualified Mortgages
The new rules are called Qualified Mortgages, aka the “ability-to-repay” rule. Due to some of the unscrupulous lending practices during the recent housing crisis, this rule was created to ensure creditworthy homebuyers with access to safe mortgage financing. To do this, lenders will have to look deeper into a buyer’s criteria before making a mortgage loan.
So, what does this mean? To provide a qualified mortgage loan, lenders will have to prove eight things about each buyer beginning in 2014:
• Current income or assets
• Current employment status
• Credit history
• The monthly payment for the mortgage
• The monthly payments on other mortgage loans you might get at the same time
• The monthly payments for other mortgage-related expenses, such as property taxes and home owners insurance
• Other debts
• Monthly debt payments, including the mortgage, compared with your monthly income and how much money you have left over each month after paying your debts. This is known as the debt-to-income ratio.
Now, to be fair, there isn’t that much here that lenders haven’t been asking for or haven’t been doing as part of the loan approval process in the recent few years. It does mean that the proof on paper has to be as complete as possible. Not only do lenders obtain information from the borrowers, underwriters do multiple checks to make sure the information they receive is accurate.
First-time homebuyers, low- and moderate-income buyers, and self-employed buyers who don’t have a consistent flow of income might have a tougher time in the new lending environment.
Will it take longer to get a loan? Too soon to know. The wise assumption is to assume the loan process will be slower than the last time you got a mortgage. Don’t let it stress you out and just plan for it.
That said, the new verifications mean you really can’t lie on your loan application. (The days of Stated Income scenarios are flat…g-o-n-e.) You’ll just get caught and then you won’t get your loan.
Make copies of every piece of paperwork you give to your lender. That way, if you’re asked to send it again (sometimes it happens), you have it ready to go.
Discuss lender choices with me. I am in the marketplace daily and have relationships with the best of the best lenders, and will know what lenders are really doing versus what their loan officers say they’re doing.
You can relax — That “questionable” item in your underwear drawer will remain for your eyes only.