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Buying a Home, Mortgages

What Does Ability To Repay Mean?

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What are the “Ability to repay” rules about?

In a nutshell, as this video shows, new laws require lenders to make a good-faith assessment of a borrower’s capacity to pay back their loan over time.

It’s a longer-term view that goes beyond immediate income, debt and credit rating.

These new Federal laws- supervised by the CFPB – require lenders to ask more questions – about income, assets, employment, credit history, and monthly expenses – as they relate to the proposed loan.

For example, a lender offering a mortgage with a low initial rate must try to assess how a borrower will handle the later, higher rate as well.

If you’re applying to borrow ask whether the program you’re considering is a Qualified Mortgage

Ability-to-repay rules are built in to loans that meet Qualified Mortgage guidelines.

 

Buying a Home, Mortgages

How Large A Down Payment Do I Need?

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There are mortgage options now available that only require a down payment of 5% or less of the purchase price. You’ll see some pictures in this video to help you remember later – the larger the down payment, the less you have to borrow and the more equity you’ll have.

Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan.

When considering the size of your down payment consider that you’ll also need money for closing costs moving expenses, and – possibly – repairs and decorating.

Mortgages

What Is Loan To Value (LTV) And How Does It Affect The Size Of My Loan?

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While this video simplifies things to help you remember, the loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing.

Each loan has a specific LTV limit. For example: With a 75% LTV loan on a home priced at $100,000 you could borrow up to $75,000 (75% of $100,000) and would have to pay $25000 as a down payment.

The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyers are required to pay out of their own funds.

So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policies.

Mortgages

What Is A Qualified Mortgage?

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As this video explains,  Federal laws put into effect in 2014 and  supervised by the Consumer Financial Protection Bureau define lending practices and loan terms for a new category called “Qualified Mortgages.”

They provide stable loan features for consumers and improve legal protection for lenders who follow the guidelines.

These guidelines require lenders to assess each borrower’s ability to repay their mortgage loan.

As of 2014, guidelines require that a borrower’s monthly DEBT – including mortgage – be no higher than 43% of their monthly gross INCOME.

The laws also define unacceptable loan terms:

  • interest-only loans
  • terms over 30 years
  • negative-amortization loans that increase principal over time
  • most balloon loans do not meet the Qualified Mortgage guidelines.

The laws aim to provide consumers with objective guidance  about reasonable debt from the CFPB and in return, to grant lenders who follow that guidance with higher levels of protection from lawsuits.

Ask your lender about Qualified Mortgage options for your home purchase.

 

Mortgages

What Is A Mortgage?

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The original phrase “mort gage” translates as “death pledge”! But as this video explains, a mortgage is a loan obtained to purchase real estate.
The “mortgage” itself is a lien – a legal claim on the home or property that secures the promise to pay the debt.

All mortgages have two features in common: principal and interest.

The principal is the amount you are borrowing which is “secured” by the lender’s claim on the property.

The interest, usually stated as the percentage rate is the additional amount paid for borrowing. Mortgage interest is ‘compounded’ – interest on interest, over time.

Federal Programs

What Are 203(B) And 203(K) Loans?

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The most common FHA program is the 203(b) FHA Loan. It offers a low down payment, flexible qualifying guidelines limited lender’s fees, and a maximum loan amount.

A 203(k) loan enables a home buyer to finance both the purchase and rehabilitation of a home through a single mortgage. A portion of the loan is used to pay off the seller’s existing mortgage and the remainder is placed in an escrow account and released as rehabilitation is completed.

Basic guidelines for 203(k) loans are as follows:

  • The home must be at least one year old.
  • The cost of rehabilitation must be at least $5,000, but the total property value – including the cost of repairs must fall within the FHA maximum mortgage limit.

The 203(k) loan must follow many of the 203(b) eligibility requirements. Lenders will know specifics about improvement, energy efficiency, and structural guidelines.

Federal Programs

What Types Of Closing Costs Are Associated With FHA-Insured Loans?

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While this video simplifies things to help you remember, except for the addition of an FHA mortgage insurance premium, FHA closing costs are similar to those of a conventional loan.

As of 2013, the FHA requires a single, upfront mortgage insurance premium equal to 2.25% of the mortgage to be paid at closing (or 1.75% if you complete the HELP program).

This initial premium may be partially refunded if the loan is paid in full during the first seven years of the loan term.

After closing, you will then be responsible for an annual premium – paid monthly – if your mortgage is over 15 years or if you have a 15-year loan with an LTV greater than 90%.

Federal Programs

What Are The Steps Involved In The FHA Loan Process?

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The video explains the steps in FHA loans in more visual terms. With the exception of a few additional forms, the FHA loan application process is similar to that of a conventional loan.

With new automation measures FHA loans may be originated more quickly than before. And, if you don’t prefer a face-to-face meeting, you can apply for an FHA loan via mail, telephone, the Internet, or video conference.

Federal Programs

How Can The FHA Assist Me In Buying A Home?

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Remember these points from the video:

  • The FHA works to make home-ownership a possibility for more Americans.
  • With the FHA, you don’t need perfect credit or a high-paying job to qualify for a loan.
  • The FHA also makes loans more accessible by requiring smaller down payments than conventional loans.

In fact, an FHA down payment could be as little as a few months rent. And your monthly payments may not be much more than rent.

CFPB, Resources, TRID TILA-RESPA Integrated Disclosure

Can the TRID 3-day rule possibly delay your closing?

One of the regulations associated with the new TRID forms is a 3-day rule. The 3-Day rule mandates borrowers MUST receive the Closing Disclosure 3-days before the closing date. This new rule gives consumers the opportunity to review the closing disclosure and ensure all information is correct and correlates with the Loan Estimate.

However, what happens if any changes need to be made?

The infograph below explains three situations that would require a new closing disclosure and thus, delay your closing.

3 Day Rules