It’s hard to believe, but it’s only been five short years (it’s now July 2013) since the mortgage meltdown brought about a recession not seen since the Great Recession. Especially for younger consumers, buying a home suddenly felt like an overwhelming feat. Homebuyers weren’t sure who they could trust; after all, there were more than a few banks and mortgage lenders who were taking hard falls from grace off of their pedestals. Fortunately, the mortgage and real estate sectors have recovered and the thought of buying a new home once again no longer feels so much like a hopeless proposition, but rather, a top priority.
Of course, the rules have changed, but for consumers, these new compliance guidelines ensure a more fluid and transparent process. These new laws were put into place by the Consumer Financial Protection Bureau. You may recall this was part of President Obama’s 2010 CARD Act, which was passed into law for one very important reason: to ensure the American consumer doesn’t find himself on the losing end of his investment.
The traditional dynamics remain in place. Before buying a home, there are requirements that must be met, including appraisals, income and employment verification, down payments and other state-specific laws.
A few of the new federal rules (and you’ll of course need to check with a realtor or lender in your home state for further compliance considerations) include:
- No more “risky” terms, such as mortgages that are longer than 30 years
- A borrower’s debt to income ratio (DTI) must not exceed 43% of his pre-tax income
- Clearer terms and conditions in the paper work, from the Truth in Lending Disclosures to interest rates
- No more “stated” loan programs. These were one of the biggest problems leading up to the meltdown. Lenders had found themselves in the habit of accepting “stated” applications where the applicant stated his worth, salary and bank balances. Now, there are guidelines in place that require definitive proof of an applicant’s ability to repay.
- No more “baiting” with low interest rate adjustable rate programs that become overwhelming after a certain period.
As a consumer, you’ll want to approach your efforts of buying a home with a realistic mindset. It’s an exciting time, no doubt, but the last thing you want is for your version of the American dream to become the one thing that keeps you awake at night. Save yourself another headache by getting pre-qualified. While you shouldn’t see that as a “pre approval”, it does tell lenders and realtors that you’re serious about buying a home. Finally, remember due diligence goes a long way. Conduct your own research into the area you’re looking to buy into and don’t be afraid to ask questions.