How will the new mortgage limits affect you?
The whole world felt the effects of the global economic recession of 2008 and America was no exception. The associated housing market crash caused difficulties for many average Americans.
New mortgage regulations are being brought in to try and help avoid this situation occurring again. Potential homeowners should also help themselves by using a mortgage calculator to understand the figures involved.
In 2010, Bloomberg reported that more than 2.87 million homes were subject to repossession, auction or defaulting. Research suggests this number will rise by 20% in 2011, for various reasons.
Firstly, unemployment is still high and for those in work, wages remain frozen. With the cost of living rising, many homeowners cannot meet their financial obligations and have run out of ways to cope.
This is distressing for individuals on a personal level and for the country as a whole. Crime levels are rising and mental health issues such as depression are also more common in tough economic times. New regulations have been designed with these points in mind.
The ideas, proposed by six regulators, suggest that lower-cost mortgages should only be offered to people who can provide a 20 percent down payment.
In addition, the potential homeowner’s monthly mortgage repayment should total no more than a third of their income. This is to ensure that there is a built-in safety net should certain events occur.
Many people who are at risk of losing their home, or unfortunately have already been repossessed, had mortgage repayments that exceeded half or more of their monthly wage.
This left little room for emergencies such as illness and accident and other events outside their control, such as redundancy, wage cuts and other unfortunate events at home and abroad. As part of a connected world, what happens elsewhere can affect us here in theUnited Statesas well.
The new regulations are designed to overcome these difficulties and to deter banks from lending to individuals with little chance of meeting financial obligations.
Those wishing to buy are encouraged to look realistically at their financial situation and options. If you want to check how this applies to you, make use of a good mortgage calculator.
As with all things, there are always pros and cons and the new regulations have been stated as punishing for first-time buyers and those from less affluent backgrounds.
A 20 percent down payment is a substantial amount of money for those just starting out in life. With student debts and an uncertain job market, many young Americans will not be able to afford to buy.
Similarly, those from lower socio-economic groups will find it harder to amass the money necessary to purchase a house. Many people may become trapped within the rental market.
If you wish to work out how much you can afford under these new regulations, use a mortgage calculator for a preliminary understanding of your situation. Knowledge equals power and with the figures at your fingertips you will be well prepared to find your dream home at the right price. Enjoy the adventure!
But nowadays don't banks require you to have 20% down payment to even qualify for a loan?
I think the new regulations are definitely a good idea as it keeps people from buying something they really can't afford, and it keeps banks from taking on risky loans. However, personally, it's disallowing me from refinancing my home. My mortgage is less than 1/3 of my income, but due to my credit card debt my debt to income ratio is too high, thus I can't re-finance. Ie, I can't get a loan for something I already have a loan for. Seems rather odd when you think about it that way.
Sounds like a good time to own a rental property or apartment complex!
Tushar, I believe in responsible lending and downpayments of at least 10-15%. If a borrowers total debt with mortgage is under 35%, (mortgage debt should be below 28%), they are usually okay. Responsible lending policies would have prevented the recent mortgage crisis.
I also think these proposed regs may be beneficial - although the minimum requirements they are proposing are nothing new and should have been taken more seriously in past mortgage transactions. I think the idea of homebuying as a requirement to obtaining the American Dream needs to change. A low income family purchasing a 100% financed home because 'that is what you are supposed to do' seems to have backfired.
I actually think the proposed changes are a good thing. It will sound bad but sometimes people need to be protected from themselves. It is easy to be tempted to get into a situation that you really should get into. If there are limits that prevent you, like a 20% down payment, then you won't be able to get in over your head. I think it is too easy for people to get credit these days and if that changed, recessions would be less likely.
I'm not sure I agree with having 20% down be a requirement for getting good rates -- all that's going to do is put the people who don't save up 20% down at higher risk since they'll be paying more in interest. However I think limiting the payment amount to less than 1/3 of income is a great idea.
- spam
- offensive
- disagree
- off topic
Like