New Mortgage Rules Could Be a Pain

Starting in January 2014, it will get harder to obtain financing for a home purchase. New regulations from the Consumer Financial Protection Bureau will go into effect requiring mortgage lenders to adopt a rigid new set of rules for originating mortgages that are eligible for backing by government-sponsored entities Fannie Mae and Freddie Mac.

The new rules:

  • Banks can’t approve mortgages for anyone whose debt-to-income ratio is higher than 43% (no flexibility, no taking the totality of a person’s financial circumstances into account).
  • Banks must limit fees for originating mortgages to no more than 3% of the loan amount (this rule could discourage lenders from offering loans on lower-priced properties).
  • Banks must obtain verification of all sources of income (the new, more stringent requirements will make it harder for the self-employed to substantiate their incomes).

The new rules amount to credit tightening for millions of Americans. People at both the low end and the high end of the housing market will be affected. If you have a home for sale, it may become more difficult to match it with a qualified buyer next year.

And if you’re in the market for a home, then at the very least, you can expect a more involved application process. “This is especially true for borrowers seeking larger mortgages,” according to Bankrate.com. “Selfemployed borrowers also may need to jump through additional hoops to get a home loan.”