Mortgage News Today!
Andrew Augustyniak, Peoples Mortgage Co.
There were a few changes made in relation to QM (Qualified Mortgage) that were implemented in the beginning of January that may affect borrowers. What is Qualified Mortgage? Basically it is a new set of regulations to protect the borrower and make sure that they can afford to get the loan they are applying for. This will have an effect on certain borrowers. The two biggest changes we are seeing is the tighter debt to income ratio regulations, as well as monthly residual income requirements. In the past, we had the ability to give approvals on FHA loans up to 57% and conventional approvals pushing 47% with compensating factors. We are no longer seeing FHA approvals over 50% and conventional no more than 45%. Soon, they shouldn’t be over 43% for both, as that is believed to be the magic percentage of where a borrower should be able to afford a mortgage. The residual income topic will tend to impact the low income borrower more than most. As defined in the guideline, residual income is “the qualified gross monthly income less the gross monthly debt.” Before, the residual income amount never really had an impact or defined a number as to how much a borrower should have; now we have a defined range of residual income that a borrower should have to qualify for the loan.
Residual Income Standards
- Borrower has $2500 or greater in residual income, no minimum asset reserves required
- Borrower has between #800 and $500 in residual income, 2-3 months PITI reserves required
- Borrower has less than $800 residual income, borrower will not qualify for a loan
Most borrowers may not have to worry about these two big changes, but there are many who may need to rethink if they want to get a loan. For those on the border, it is very easy to calculate your debt to income and residual income values. If you do need help, please let me know!
- Be aware of your debt to income ratio and new debts being obtained
- Try to keep your asset reserves strong in case you fall under bullet 2 above
- Don’t get made at your Loan Officer; it’s not his fault
If you have any additional questions or concerns relating to product guidelines and/or qualifying scores, please contact me.