Qualified Mortgage Rule is Common Sense

I invite you to read this recent article by real estate columnist Alan J. Heavens regarding new mortgage rules.

Agency's New Definition May Calm Mortgage Fears, January 27, Philly.com

The Consumer Financial Protection Bureau (CFPB) is rolling out new lending rules, designed to help guide lenders in granting consumers safer loans.  Although I am not in favor of layers of government regulation, clearly the new rules are being put in place as a result of the industry’s inability to police itself.

Still, apart from any lending rules, it will be incumbent upon would-be homeowners to understand their own personal finances in an effort to determine how much of a mortgage payment they can reasonably afford.

While the definitions in the new rule offer many safeguards, most of them are just common sense. If individuals don’t understand how to put in place and manage a monthly budget, there’s a 50% chance that they’ll be heading into a financial nightmare.

The guideline for a “qualified mortgage” is a debt ratio not to exceed 43% of gross income. This formula measures only loan debt and does not consider the borrower's other monthly expenses such as utility bills, automobile insurance, child care etc.  Borrowers need to run a few calculations of their own before trusting the amount the lender determines is reasonable safe.

Bottom line advice for home buyers: know what you can realistically afford before you start to look.  Finding the right house and negotiating the final sales price is a very emotional process.  When faced with the decision about how much you can or cannot afford once you’re emotionally involved, you'll be twice as likely to compromise your better financial judgment.