If your plans for 2014 include purchasing a new home, you will want to know ahead of time it may be more difficult to qualify for a loan.
New federal mortgage rules, established by the Consumer Financial Protection Bureau, go into effect January 10th.
The new rules, passed under the 2010 Dodd-Frank bill, are meant to prevent bad lending practices that led to the housing market crash in 2008. It requires banks to make sure loans are affordable, or face strict penalties.
CNN Money reports “During the housing bubble, some banks issued loans without even checking applicants' income or assets. Under the new rules, lenders must carefully determine that borrowers have the ability to repay their loans."
Prospective home-buyers are being advised to start doing their homework early. Realtor Howard Flaschen suggests cementing loan options now.
"What’s going to happen is it’s just going to get tighter, a lot more scrutiny, mortgages will take longer to get through the system," said Flaschen. "It’s just going to be harder for homebuyers to find homes."
On top of new mortgage rules, home buyers should keep a close eye on interest rates that could increase your monthly payment.
Time.com reports Freddie Mac and Fannie Mae announced consumers will have to have a higher credit score to get their lowest interest rates of mortgages. The new rules could "add as much as 0.05% to the interest rate that a fixed rate borrower pays."
"Interest rates are going up. Everyone knows that. They’ve been going up and that makes affordability go down and monthly payments go higher," Flaschen warns. "Then debt-to-income ratios are going to be looked at very closely by Fannie and Freddie and the FHSA," said Flaschen.
Flaschen said if you're looking to buy, make sure to put together a good team. You will need a realtor and a mortgage specialist. That team would help you find the dream home you can afford, but it might be more difficult.
"Prices are higher, interest rates are higher, regulations tighter so you could easily be looking at a couple hundred dollars [extra] in your monthly payment every month," said Flaschen.