Over the last couple of years, the Consumer Financial Protection Bureau has been working around the clock to introduce more borrowing requirements, all aimed at improving the current mortgage practices. These practices are hugely responsible for the financial meltdown which triggered the economic recession of 2009.
Home Loan Guarantee Fees Go Up & Paperwork Increases
While the initiative is welcome, what homebuyers need to realize is that this causing a hike in the guarantee fees on loans backed by the government and the overall paperwork submissions required to secure loans has increased a lot. This means that as a borrower you might have to wait much longer to get the loan approved, even if you have the perfect credit history and can pay the amount of down payment required easily.
Fees and Loan Limit Go Up Together
The government has changed its mortgage policy and is ensuring that stricter checks are in place which determine whether the borrower has the financial stability to pay the money back or not. This strategy has been adopted to make sure that the number of borrowers defaulting on their mortgages decreases substantially, which will in turn help in dealing with the economic recession brought on by the bursting of the US housing bubble. One of these measures is the increase in fees for government-backed mortgage loans, which will directly impact the borrower and this increase the mortgage rates in return.
Another is the new maximum loan amount limit which is almost 15 percent less than what it used to be. So, basically the borrowers now have to pay more to get a loan and the total amount they will get is considerably less than before. Not only qualifying for a loan is becoming more difficult, but securing the amount you need to buy your dream house seems unattainable as well. Home borrowers in the Boston, MA area will have to adjust their expectations and may be look at smaller houses.
Down Payment Rules
According to the new policy, all home loan borrowers will have to pay 0.5 percent of the loan amount in form of the mortgage insurance premium. Also, the borrowers can only get a maximum of 60 percent of the amount that they are borrowing – not a dime more. Getting a portion of your down payment from a relative or a friend in form of a gift is still possible and a viable option and it helps with the tough standards.
Credit History Under More Scrutiny
In order to reduce the number of foreclosures, this year the government will ask the lenders to evaluate the buyers before they lend money so that they can ensure that the borrower has sufficient money to pay the mortgage and the taxes. This will be achieved by reviewing their financial and credit history, so basically all borrowers will come under much more scrutiny. The move will make the procedure more expensive and it will take much longer as well. Some borrowers in the Boston, MA area have had to wait for 7 to 10 days more than before to get their loan sanctioned and the amount of paperwork they have had to submit is quite taxing.
If you need help navigating the home loan process, and making it go as fast and efficiently as possible, contact me in Boston – Phil Ganz.