There are new mortgage rules coming in January of 2014 that will make getting a government-backed mortgage more difficult. While there are several rule changes on tap, the one that will affect borrowers most is the new stricter debt to income ratio rule.
Debt to income (DTI) ratios take the total monthly mortgage payment, including property taxes, homeowners insurance, and homeowners association fees, and compare them to the gross monthly income of a borrower. So for example, a borrower who earns $4000 per month in salary before taxes, and who has a total mortgage payment of $1000, would have a housing debt to income ratio of 25%. Of course housing is not the only household expense, so if that person had other loans she were paying off, like car payments, student loans, or credit cards that added up to another $1000 per month, her total monthly debt payments would be $2000 per month. With a gross monthly income of $4000 that would put her total or “back end” debt to income ratio at 50%.
Currently debt to income ratios can be as high a 50% or even 60% in some cases on government-backed mortgages. Starting in January it will be very difficult to qualify for a mortgage if the total or “back end” debt to income ratio exceeds 43%.
While this news is not devastating, it will make it harder for many people to qualify for a refinance. Further, it will mean that home buyers will qualify for less money than they currently can.
With that in mind, if you are considering buying a home or refinancing now is the time to contact us to get the process started. Rates are still historically low and many people who can qualify for the mortgage they are seeking now may no longer qualify with the new, stricter guidelines begin in early 2014. Contact us in the sidebar today to learn more and to get started.