The Ability-to-Repay Rule
It's hard to imagine lending requirements getting any stricter, but the Ability-to-Repay Rule adopted last January will take effect January 10, 2014.
In the years leading up to the financial crisis, most consumers were of the belief that the lenders would not make loans to them that they could not qualify for. Obviously that was not true as many consumers ended up with loans they should have never gotten and eventually in delinquency and foreclosure. Our broken financial regulatory system allowed irresponsible lenders to take advantage of consumers. In an attempt to make sure this never happens again, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into federal law on July 21, 2010 by President Obama.
The Act established the Consumer Financial Protection Bureau which in turn adoped The Ability-to-Repay Rule requiring lenders to take more into consideration when making mortgage loans. The rule applies to most mortgage loans, with some exclusions like home equity lines of credit and reserve mortgages.
Under the rule the lender will have to collect and verify financial information from consumers such as W-2s and pay stubs. Following are eight types of information they will be required to consider.
1. Your current income or assets
2. Your current employment status
3. Your credit history
4. The monthly payment for the mortgage
5. Your monthly payments on other mortgage loans you get at the same time
6. Your monthly payments for other mortgage-related expenses (such as property taxes)
7. Your other debts
8. Your monthly debt payments, including the mortgage, compared to your monthly income (“debt-to-income ratio”). The lender may also look at how much money you have left over each month after paying your debts.
Much of this seems to already be implemented as lending standards have been tightening up for quite some time. Lenders have lost the ability to look at the big picture regarding the borrower and make a decision on whether to lend to them or not. All the cards now lay with the underwriters.
Gone are the days where a prequal is good enough to submit an offer. Today a good lender is critical! As Realtors, we depend on them to qualify our buyers before we even begin the buying process. The last thing you want is to go through the offer process, have your offer accepted, and then find out that you don't qualify for the loan. As a buyer you can be out $1000 by then (the cost of an appraisal, $450-$500, and home inspection costs, $400-500).
Find out more about the Ability-to-Repay Rule and what it means for consumers. Call or email me for a list of recommended lenders.
I am a REALTOR® in El Dorado Hills with Lyon Real Estate. I love living in El Dorado Hills, where homes with views have become my passion. Working with both buyers and sellers, my concentration on homes for sale includes not only El Dorado Hills, but also Folsom and the Cameron Park vicinity. For more information on me or our wonderful area visit my website at www.DeeDeeRiley.com or email me at firstname.lastname@example.org. When you're ready to sell or buy a home – I would love to help! To read what my clients have to say about me and my service, visit my Client Testimonial page.
By DeeDee Riley 2013 *All Rights Reserved*The Ability to Repay Rule
DeeDee Riley - El Dorado Hills Realtor - Lyon Real Estate - CABRE#01499004
When you're ready to sell or buy a home; I would love to help! To read what my clients have to say about me and my service, visit my Client Testimonial page.