Thursday, January 10th, Federal officials released new mortgage rules set to go into effect on January 21st, to decrease risky lending and to allow borrowers to easier understand what they are agreeing to. The new mortgage rules are aimed at avoiding the kind of mortgages that ultimately led to the recession. Previously, banks and lenders often didn’t check documentation, require a minimum credit score or determine if the borrower’s income could sustain the loan payments. The new rules will affect all the mortgage lenders and they will have 12 months to implement them.
The new determining factors for mortgage loans are borrowers income and total assets must be enough to repay loan, jobs must be documented, credit scores must meet the set minimum, payments have to be affordable, must have the ability to afford other debts associated with the property, must be able to pay all home related expenses, and all other obligations the borrower may have such as car or student loans and credit cards must be taken into consideration. If a borrower fails to meet guidelines they can still get a mortgage as long as the total payment does not exceed 43% of the pre-tax income.