2014 Ushers in Tighter Home Lending Requirements

Happy New Year everyone! Make 2014 a year of accomplishments. The biggest news in Real Estate for 2014 so far concerns mortgages & unfortunately the news is filled with lemons. So as the saying goes, find a way to “Turn those lemons into lemonade!” Buyers and Sellers in 2014 should be aware of the many lending changes that became law on January 1, 2014. For Buyers, the impact will be harder qualifying. For sellers, the impact will be the possibility of a smaller pool of buyers than there were in 2013 due to the tighter lending rules. Simply put, the changes ‘could’ translate into a softer selling market including those markets that were robust in 2013. A synopsis of the changes are as follows: (1) Borrowers will be paying more for mortgages this year due to an increase in fees being charged to borrowers on government backed loans. (2) Due to the fact that so many lending institutions made bad loans that caused the housing melt down that began in 2007; lenders today will be held accountable for the loans they make. The result of this is that lenders will be not only ‘required’ to completely verify your finances but also to completely verify your ability to repay a loan with utmost certainty & they will be using a new debt to income ratio (43%). It’s already been noted that many borrowers who would have qualified for a loan in 2013; won’t in 2014. Consequently, if you fall outside of the new 2014 lending parameters, the chances of your being denied a loan increases. The reason for this is that if the loan is made and Fannie Mae or Freddie Mac don’t buy the loan from your lender, the lender has to keep the loan and LENDERS are ‘not’ in the business of keeping loans. They make money by selling the loan & getting the money back to make another loan and another and so on. So each time a loan decision is being considered in 2014, lenders will have in the back of their minds, “does this loan fall within the government guidelines or not?” If the answer is no (even by a little), or your finances put you right on the fence, the lender is at risk of keeping that loan and rather than taking that risk, most lenders will probablychoose to deny the loan. So it’s conceivable that if there is a lack of loans being made in 2014, this will negatively impact the market. (3) Self employed borrowers will have difficulty securing a loan if their income is not ‘completely’ verifiable. (4) FHA is lowering their loan limits from a previous high of $729,750 to $625,500. So before 2014, you could purchase a $729,750 home with 3% down. Now, you’ll have to get a jumbo loan which traditionally calls for 20% down! OUCH OUCH OUCH! While it can be argued that all of these regulations will weed out the types of bad loans that caused the melt down, the fact is, the new laws may have unforeseen consequences that could hinder the market and the pendulum may have swung too far in the other direction than what was necessary to correct the situation that caused the financial meltdown that began in 2007. Only time will tell. There is optimism in the financial markets however; the economy is growing, unemployment figures are getting better and so is buyer confidence. Will these positives offset any negatives caused by the new 2014 mortgage rules? Again, only time will tell. Bottom line for borrowers: get your credit and finances & complete documentation in tip top shape before applying for a loan and for both buyers & sellers in 2014, take heed: Bette Davis as Margo Channing may have had it right when she said, “Fasten your seat belts, it’s going to be a bumpy ride.”
Catch our next blog on January 13: 2014 Interest Rate Predictions. Follow us on Twitter @ 90210re.

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Charles Sant'Angelo is a broker of 20 years with offices in the same Beverly Hills location. He has represented residential & commercial buyers & sellers in LA, Orange, Riverside & San Bernadino counties and as far away as Costa Rica. Whether you are a local or global 1st time buyer , a seasoned home buyer/seller or an investor, you will find that his professionalism & his 'Customer First' approach is the cornerstone to how he conducts business. Please visit our "About Us" page for more information or contact Charles direct at chas90210@gmail.com
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