Mortgages Get A Makeover


by Stephanie Berenbaum – January 11th, 2013

Common Sense Rules – Finally

As you may have heard, the Consumer Financial Protection Bureau announced some new rules affecting what mortgage lenders can – and can’t – do.  And it is totally shocking that these common sense guidelines weren’t in place all along! Things like:

Limits On Teaser Rates 

Remember all those people who thought they were getting such low “introductory” rates, and either ignored or didn’t understand the fact that the lender would be able to adjust the rates upwards within a few years?  Under the new system, just being able to afford the payments at the lower rate won’t get you the mortgage anymore!

Bans On Interest Only Loans

Interest only loans were all the rage for a while – where people paid zero towards the principle, and just paid the monthly interest.    Of course the bummer came at the end of the term – oops – you owe the whole principle amount!  What a great idea….

You Actually Need to Prove You have Income & Assets

It’s true, those fabulous “no documentation loans” are officially no more. Remember these loans, sexily referred to as “Ninja” loans: “No income, no job, no assets”? Ninja loans allowed home buyers to ignore that pesky documentation process that actually verifies whether someone qualifies for the mortgage they are seeking or not.   It’s still shocking that this was ever allowed..

You Can’t Take on Limitless Debt Anymore!

Under the new rules, a borrower’s total debt can not exceed 43% of his or her income. And debt includes: student loans, auto loans, revolving debt, alimony, child support and existing mortgages.  Be honest – would YOU have qualified for the mortgage you got if this simple rule had been on the books a few years back?

Buyer Beware

A read through these new rules really just has us saying What the…? Though we think it is great that these regulations are finally being enacted, the reality is that the average consumer is not savvy when it comes to learning about mortgage instruments before buying a home.  Large lenders and corporations have banked on consumers’ naivete for too long…

Play on the Offense

That said, we can’t blame the big corps for everything…  That is why it is so important to educate ourselves on all of the options  – and potential outcomes – before we EVER borrow money.  Owning a home is most people’s biggest investment.  Thinking long term when entering a loan for a house or condo is essential.  And if you have a mortgage and are in over your head, call your lender and negotiate an alternative a plan before it is too late and you jeopardize losing your home!

 

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