mortgage

Most can get mortgage, despite QM rule

You may have heard that new mortgage rules have made it more difficult for consumers to qualify for home loans. That's true for certain borrowers -- but not all.

The Consumer Financial Protection Bureau implemented the controversial "qualified mortgage" rule this year, and lenders say the impact on consumers hasn't been as severe as feared.

Lenders must show that borrowers can repay

A qualified mortgage, also known as a QM loan, requires the lender to verify a borrower's ability to repay. Sometimes it's called the ability-to-repay rule. A QM loan is presumed to have less likelihood of going into default, and for that reason, the lender gets legal protections.

Sky didn't fall; people are getting loans

As the rule was about to be implemented, many in the lending industry said the QM rule would prevent many eligible borrowers from getting mortgages.

"But it's not nearly as bad as some people thought," says Pete Grabel, mortgage loan originator at Luxury Mortgage Corp. in Stamford, Connecticut. "We do thousands of loans and I would say in the last six months we've had only a handful that was impacted."

You may qualify with high debt-to-income ratio

When lenders determine ability to repay, they consider the borrower's debt-to-income ratio. There has been confusion over whether a loan can be a qualified mortgage if the borrower has debt to income over 43 percent.

Debt-to-income ratio

Debt to income, or DTI, is the share of monthly income that is spent on debt payments, including mortgages, student loans, auto loans, minimum credit card payments and child support.

Formula: Debt payments / income

Example: Jessie and Pat earn $10,000 a month. Monthly debt payments are $3,800. Their DTI is 38 percent ($3,800 divided by $10,000).

Example: Micah earns $3,000 a month. Total monthly debt payments are $1,320. Micah's DTI is 44 percent ($1,320 divided by $3,000).

In fact, it is possible to get a qualified mortgage with a DTI over 43 percent. That's because loans approved by the automated systems of Fannie Mae, Freddie Mac and the Federal Housing Administration are exempt from the 43 percent DTI limit.

Most won't have trouble getting loans

For many borrowers, loan availability hasn't changed much, says Cyndee Kendall, sales manager for the Northern California region for Bank of the West. The borrowers who are least affected are those who:

  • Have stable jobs with W-2s.
  • Collect regular pay stubs.
  • Need loans for amounts within the conforming loan limit.

Jumbo loans

Mortgages above the conforming limit are called jumbo loans. The conforming limit is $417,000 in most places but can go as high as $625,500 in high-cost areas such as San Francisco. Here’s what you should know about jumbo loans.

"It's not the disaster that everybody said it was going to be," says John Walsh, president of Total Mortgage Services in Milford, Connecticut. "But is it preventing some people from getting loans? Yes.'"

Some borrowers will have difficulty

Certain types of borrowers -- including self-employed, commissioned employees and those looking for jumbo loans -- may have to jump through more hoops or look harder for loans since QM was implemented, Kendall says.

"There have been some people who would have possibly been approved (for a mortgage) last year who would not be approved today," she says.

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