Home Flipping Houses How the 2 New Mortgage Rules Affect Your Fix N Flips

How the 2 New Mortgage Rules Affect Your Fix N Flips

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A new mortgage rule came into force last Friday to sort out, modify and prevent past malicious lending practices.

The Consumer Finance Protection Agency is an agency that has issued new rules and has attempted to focus on returning to the basic approach. It contains two new rules that lenders should follow. Eligible mortgage and repayment ability rules (do you really make this a rule?).

Eligible mortgage

A big indicator that lenders use to see if you can really afford a home is your debt-to-income ratio. This is a basic calculation of your monthly obligations (student loans, car payments, credit cards and other recurring expenses) and is split into your total monthly income. It’s not a strict rule, but ideally debt for less than 43% of your income. Banks can lend to banks with high DTI, but they need more assets, reserves, etc. to justify taking the risk.

Eligible mortgages have been used to slice and dice to make a loan more delicious, such as extending the loan term by 30 years to reduce monthly payments, paying only interest, or making a minimum payment. It cannot have “features”. t matches even the minimum interest payable. In addition, there are no high upfront fees or fees incurred in excess of 3% of your mortgage balance. This includes title insurance, points to lower mortgage rates, and origination fees. If you have purchased multiple properties, try to keep the closing cost to around 2-3%. It’s not uncommon for buyers who may be inexperienced to pay large fees, points and percentages, filling the pockets of opportunistic loan officers and lenders.

Ability to repay

With the new mortgage rules, the debt-to-earning ratio will be a strength. This is, in fact, the cornerstone of the borrower’s ability to make payments over the entire life of the loan. As you may remember, loans such as NINA (No Income No Assets), low-value loans, and other high-risk mortgages that require little verification of the applicant’s income, assets, liabilities, and credit. These types of products basically put people who are interested in getting credit into a loan, ignoring the impact.

Not only does DTI spend extra time checking the borrower’s monthly debt, income, credit history, and assets, but it can no longer be based on low adoption rates and if the “teaser rate” expires. You will not be able to base on the full amount of the monthly fee you face.

However, what is not listed is the minimum credit score requirement or down payment. If everyone who wants a mortgage here is expected to be down 20% at 720FICO, especially those who buy a home for the first time, the number of people who can get a mortgage can be significantly reduced.

However, it’s worth noting that it’s likely to appear in Freddie Mac’s or Fannie Mae’s books, which support nearly 75% of mortgages in all countries, regardless of the mortgage issuer. Currently, applicants with a score of 620 or higher will not be approved.

These changes are not a surprise to lenders who have been expecting these changes for months. Although processing time can be long, many borrowers are still interested in taking advantage of low interest rates as the 30-year mortgage rate is still less than 5%.

But what causes the outage is that the borrower gets out of the door and relaxes to buy a house. Marketing time, contracts, and closings are slowing in some markets. This probably reflects anxiety about the job market and curiosity about how real estate will change during the spring sales season.

Related: How the Dodd-Frank Act affects your real estate business

Tips if you are selling real estate

If you are rehabilitating real estate and selling them for profit, the chance is that the majority of your new buyers are funded. Depending on the market you are entering, sales times can also be very slow. The last thing you want is to answer the phone with interested and dedicated buyers and find out deep in the process that they are not eligible to close.

One of the things I need to do to make a sale is that if the buyer has a loan, I need to check in to my preferred loan officer who works for a brokerage firm (that is, he has only one bank). I’m not working). They don’t have to draw their credit, but they need to get a “soft” qualifier from him to proceed with the deal. If they decide to be with their lender and he / she can’t close the loan, we have Plan B. This can help save transactions and reassure them more. Many loan officers who are still in business tend to be more feasible if they can close the loan, but they seize the opportunity or hit the entire transaction around someone who has never worked. I don’t like what they want to be able to do.

Also, I call the applicant’s loan officer to confirm that the borrower is qualified (who cares if it says so on the paper ?!), and others. Useful information. I would like to hear that they are experienced and really scrutinize buyers and have the confidence and underwriting team to close the loan. As lending practices evolve and change, it gives you a way to oversee this important part of selling your real estate.

What do you think? Do we need to tighten lending restrictions, or is it a time when we are ripe for implementing stricter lending practices?

Photo: SalFalko

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