In January 2014 a host of new Consumer Financial Protection Bureau (CFPB) mortgage lending rules went into effect. These changes are all designed to protect borrowers from receiving loans they may not be able to repay, thereby reducing the risk to the lender. Given the devastating impact of the housing market crash on families and communities across the country, it is hard to make an argument against the new CFPB rules.
Many experts have speculated that these new rules will present qualification problems for many households shopping for a mortgage. Specifically, there is concern that prospective borrowers will effectively find that the sign says “low- and moderate-income households need not apply” at most lenders.
The reality is that the new CFPB rules only put into law what all reputable lenders have had in place since shortly after the crash. Mortgage applicants must provide current documentation to prove their employment status, income, assets, and debt. This information, combined with the applicant’s credit history and a credit score that meets the lender’s minimum guidelines, will be used to ensure that loans will only be approved for households that demonstrate the ability to repay the loan, today and in the foreseeable future.
One important aspect to note is the 43% debt-to-income requirement. The applicant’s total monthly debt, including the new house payment, may not exceed 43% of their income to be classified as a “qualified” mortgage. Most if not all low- and moderate-income households seeking a mortgage will need to have a qualified loan, which means that the borrower’s ability to repay the loan has been verified. Again, this debt-to-income ratio requirement has already been in place for most borrowers seeking an FHA loan, which is the most common loan product for people in these income brackets.
Despite what you may have read or heard, if you want to be a homeowner and your employment status and financial house are in order, you can get approved for a mortgage if you can demonstrate that you can afford your new house payment, regardless of your income.