April 13, 2014 (CHICAGO) --Spring has finally arrived and with it, the traditional opening to the home-buying season. But the mortgage application process has changed significantly, and that could mean it's tougher to buy a house.
Joan Jensen, Pres./ CEO, Central Credit Union of Illinois, came into our ABC 7 Eyewitness News studio to explain the changes.
1. "Ability-to-repay" rule
- Lenders must make sure borrowers can afford their loans over the long term.
- More documentation
- Ability to pay maximum monthly payment:
- Employment history
2. "Qualified mortgages" or QM
- Special new guidelines give more protection to the lender against future lawsuits if the loans later go bad.
- Mortgage terms: Length must not exceed 30 years; payments cannot be interest-only; debt must be reduced over the term of the loan and can't have negative amortization.
- Upfront points and fees: Cannot exceed 3 percent of the loan for loans of $100,000 or more
- Debt-to-income ratio: Borrower's total debt load generally cannot exceed 43 percent of their monthly income.
3. Bottom-line effects
- Most borrowers will still qualify for a mortgage.
- Some borrowers may have to make larger down payments.
- Some borrowers may pay higher interest rates and fees.
- Some people will be shut out.
- Fewer defaults and foreclosures because most borrowers will meet higher standards.