Beginning Friday, a new set of rules goes into effect, primarily affecting jumbo mortgages. And the biggest impact is likely to be in our own backyard – the SF Bay Area, where there’s a large concentration of them as its a high cost area.
Jumbo mortgages are those which are too big to be government backed, which as Fannie Mae, or Freddie Mac.
Now there’s an ability-to-pay rule, which sure would’ve been a good idea to have had in place before the financial crisis, right? Anyway, this requires lenders to fully document the borrower’s income and assets, debts, employment status, & credit history – instead of basically having a pulse, which is all that seemed necessary for a while there.
If the loan is adjustable rate, the lender must qualify the borrower for a fully indexed rate (which is the index rate the loan is pegged to, plus a margin on that index).
A qualified mortgage can no longer be a negative amortization loan, have a balloon payment, or be interest only.
Also, the repayment term cannot exceed 30 years, and the debt to income ratio is not to exceed 43%.
Fannie and Freddie can purchase loans up to $417,000 (for a one unit home), in most parts of the U.S., but can go up to $625,500 in high cost areas (yep, that’s us. As p/Dataquick, half of home purchase mortgages made in the bay area at the end of last year exceeded $417,000. ).
The FHA loan limit, which was up to $729,750, dropped to $625,500.
Yes, lenders can still make loans to folks that are not qualified if they think they can withstand a court challenge as to whether they can repay it. There are also exciting products such as loans that allow 3% down, but don’t require mortgage insurance.
Check with your local lender for details. I’m glad to put you in touch with some wonderful folks who can help.