The qualified mortgage rule was released by the Consumer Financial Protection Bureau in 2013 as part of the Dodd-Frank Reform Act. It officially took effect in 2014 and impacts the way companies assess and confirm information for customers. "What is the qualified mortgage rule for Washington home loans" is covered below.
The qualified mortgage rule requires lenders review financial information of home buyers and to analyze their capacity to repay the loan. First, earnings and assets must be sufficient to repay the loan. Secondly, that ability to make payments should be applicable over the full term of the loan and not strictly for an introductory period of time. This is an especially significant rule for loan programs with variable interest rates.
The qualified mortgage rule outlines instructions for evaluating the ability to pay, debt-to-income ratio maximums, and a cap on points and fees. Lenders are required to consider a minimum of 8 different underwriting factors to evaluate the ability to repay a mortgage. They are:
The highest debt-to-income ratio permitted is forty-three percent. This is actually more than the previous 41 percent limit. Lastly, points and fees must not exceed 3 percent of the loan amount. All of these rules were effective January 2014.
As a result of the components of the new qualified mortgage rule, certain mortgages were phased out. Examples are those with no documentation, interest-only loans, balloon payments, negative amortization, and loans for lengths longer than 30 years. Although these loan types account for an insignificant portion of all loans, it does affect specific types of borrowers such as those looking to receive jumbo mortgages.
The real estate and financial crisis is blamed on common lending practices such as providing loans with high-risk features or borrowers getting approved for mortgages that were clearly beyond their financial capabilities. The qualified mortgage rule specifically addresses harmful mortgage features. It also controls fees charged by lenders. This was meant not only to protect borrowers but also to minimize the potential for another crisis. This what is the qualified mortgage rule for Washington home loans is provided only as a summary, for informational purposes. To view more information on the qualified mortgage rule, visit the Consumer Financial Protection Bureau website.