Mortgage Minute for HomeBuyers: “What’s A Qualified Mortgage?”

New mortgage guidlelines

If you’re buying a home in Northern Virginia, you may have heard talk of new mortgage guidelines & regulations, but aren’t sure what that means for you. So we asked our Partner Paul Diaz, Senior Loan Officer with New Penn Financial, to explain.

Northern VA Mortgage Financing

Paul Diaz

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What Is A “Qualified Mortgage”?

Lenders that follow underwriting guidelines and product guidelines exactly when they write a loan will be considered to be making a ‘qualified mortgage”. “Qualified mortgages” will provide lenders and borrowers certain legal protections in the event the borrower should default.

Lenders will more than likely still write mortgage loans that are not considered to be qualified mortgages, but because they will lose some protection should the borrower default on a mortgage loan, most other lenders might just stick to the new definition and stay within the guidelines. This may mean less flexibility in the marketplace for some buyers.

Parameters for a qualified mortgage are as follows:

  • Have a loan term of 30 years or less.
  • Not have negative amortization (monthly payment must cover all the interest due).
  • Not be an “interest only” loan.
  • Not be a “balloon payment” loan where a large lump sum of the principal is due back at one time (exception made for small lenders).
  • Upfront points and fees must not exceed 3 percent of the total loan amount. Note: This cap on points and fees may make lenders less likely to offer smaller loans (less than $100,000).
  • Debt-to-income ratio may not exceed 43 percent. *Note: This can be superseded if the loan is originated and kept in portfolio by a qualified small lender, or if the loan is approved by FHA, VA, USDA, RHS, Fannie Mae or Freddie Mac. But it may become harder for people with higher debt loads to get approved for a new home if they cannot stay below the 43 percent debt-to-income ratio.

This last guideline is likely to affect many Buyers in Northern Virginia.

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If you’re wondering how much of a mortgage you can qualify for, contact our partner Paul Diaz at New Penn Financial. He can help you analyze the loan product that works best for your needs and help you get pre-approved for a mortgage. This gives you the power of a CASH buyer!

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