The real estate market has been recovering in many parts of the country, but unless first time buyers and other consumers are able to obtain home mortgages, the market will not be able to fully recover. Onerous mortgage restrictions designed to prevent another housing crisis had the undesirable effect of preventing many individuals who wanted to own a home from being able to qualify for a mortgage loan.
The Federal Deposit Insurance Corporation (FDIC) recently announced that it has finalized the Qualified Residential Mortgage (QRM) rule which is expected to ease mortgage restrictions by lifting heavy down payment requirements and allowing for more realistic debt-to-income ratios. Many individuals graduating from college with student loans, for example, could not qualify for a mortgage. The QRM is in addition to the Qualified Mortgage (QM) rule announced in 2013.
Here are the highlights of the new rule:
• Borrowers could qualify with a 43% debt-to-income ratio or less
• Lifts the 20-30% down payment requirement
• Will take effect in approximately 12 months
When the rules are fully implemented and integrated with lenders, real estate agents and brokers should be busier helping more clients find homes with a better chance of qualifying for a mortgage. “Importantly, the final rule relies on sound and responsible underwriting rather than on an onerous down payment requirement to qualify as a QRM loan,” said Steve Brown, President, National Association of Realtors®. “NAR strongly opposed earlier versions of the rule that included 20 and 30 percent down payment requirements, which would have denied millions of Americans access to the lowest cost and safest mortgages.”
The new underwriting standards couldn’t have come at a better time. Millions of consumers fear that as interest rates and home prices continue their upward trajectory, they would no longer be able to afford a home. The previous requirement of a 30% down payment was a major stumbling block for many credit-worthy individuals seeking home ownership for the first time.
These rule changes will most likely not have an immediate effect on the real estate market. Although it was recently finalized, it will take time for it to be fully implemented nationwide. While more consumers will have the ability to qualify for a mortgage under the new rules, the easing standards doesn’t mean that lenders are going to open the flood gates. However, consumers can expect to have access to more affordable loan choices. This is a big step forward and could add more stability in the real estate market within the next two years.