Is it Mortgage D-Day? Qualifying for a Home Loan in CA Gets Harder
What’s New & Different for 2014 Home Loans in California
Today’s been coined in the real estate industry as “Mortgage D-day”; new Qualifying Mortgage regulations are rolled out and they are changing the way your mortgage can be structured. We recently had the pleasure of attending a Lunch & Learn hosted by Brian Kimball, loan officer with Summit Funding. Brian went over a few of these changes in the lending industry so we figured we would share! A word of warning….lending land is confusing with a ton of acronyms! If you have questions or clarifications about this information, feel free to reach out to Brian or your preferred lender to help clarify and explain.
Some improvements and changes for California home loans starting next week:
- license required for all team members
- dual compensation is now prohibited (no more point in the front and point in the back)
- geographical standardization of commission percentage (no more getting different loan origination quotes from different lenders at the same company!)
Home Owner Equity Protection Act (HOEPA)
- 1st time buyers are now required pre-loan counseling. This education can be done online. It will hold up your closing if you do not complete this education so if you’re buying your first home or condo be sure to address this with your lender EARLY and get your certificate :) PS. A 1st time buyer is defined as someone who has not owned a home in 3 years.
Higher Price Mortgage Loan (HPML)
- Lenders must require 5 yr escrow payments (impound account) REGARDLESS of your loan to value ratio. Borrower must meet residual income requirements, so this means that many lenders are not going to be willing to offer and provide these higher price mortgage loans :/
General Qualified Mortgage (QM)
- Points and fees are less than or equal to 3% of the LOAN amount (not purchase price..cool!)
- No ‘risky’ features. This includes negative-am, interest only, or balloon payments
- Maximum loan term is 30 years. Darn, the young buyers really liked the 40 year option :(
- Maximum total Debt to Income (DTI) ratio is 43%
Temporary Qualified Mortgage (TQM)
- Meets product requirements of Qualified mortgage and is available to GSE direct lenders only
- Available until 2021: This creates some “breathing room” for lenders and buyers to settle into the new QM.
Ability to Repay (ATR)
- Lenders currently look at your big deposits, and NOW they are going to be looking into your big withdrawls too. If you have a personal loan from someone that does not show up on your credit report they will be looking into your regular payments.
- Lenders can be liable for deficiencies over the lifetime of the loan.
- Underwriting will now be based on 8 federally mandated criteria.
- All lenders must standardize underwriting practices. This means there will be less ‘exceptions’ during the underwriting process.
- Buyers must qualifiy based on fully amortizing payment and maximum payment in the first 5 years. This means buyers cannot use ARMs to qualify for more $$, simply to lower monthly payments.
Points and Fees Limits
- 100K or more -> limit is 3% max of the total loan amount
- 60-99K -> limit is $3000
What points and fees are always included in the 3% max?
- loan origination fee, rate lock and discount points
- prepaid interest
- application, processing, and underwriting
- admin fee and commitment fee
- conventional up front mortgage insurance cost
- all compensation to mortgage broker
- ‘junk fees’
What is never included in the 3% max?
- FHA MIP and VA funding fee
- Hazard insurance and property taxes
- Appraisal fee, credit report, and tax service
- notary fee and courier fee
- title insurance, flood cert
- seller paid fees and points. Sellers, think EARLY about what you are willing to add to the pot to keep a deal together.
On the 2015 horizon:
- Loan Estimate may replace the Good Faith Estimate
- Closing disclosure will replace the HUD1
Both of these things will standardize the format so buyers can easier compare lender to lender.
Wow – lots of changes to California Home Loans but many are good ones to protect consumers. Getting a loan is complicated and it’s very important to your financial future. We always encourage you to talk to a couple lenders so you can find who offers the best programs, payments, and education. If you select the wrong lender, you very well may select the wrong loan, and this could cost you thousands of dollars and big headaches in the future. DO YOUR DUE DILIGENCE and research so you don’t get burned. The Weeks Team is here to help you every step of the way with your Orange County real estate needs – call us at 877-230-3211 or tweet @AngieWeeks or @WeeksTeam with your questions!