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Qualified Mortgage Guidelines

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Buyers who need to purchase a home with a loan can expect to see significant changes in loan requirements taking effect January 10, 2014.

The new guidelines implemented under The Consumer Financial Protection Bureau's Qualified Mortgage (QM) are designed to help avoid the borrowing catastrophes that was followed by the housing crisis.

The guidelines are what lenders use to prove borrowers' ability to repay a loan.

One of the guidelines’ requirements is that borrowers must have a maximum debt-to-income ratio of 43 percent. The new rules will not allow for any compensating circumstances. Not even a significant down payment or a large cash reserve will be allowed to offset a higher debt ratio.

Self-employed borrowers will face tough standards in 2014. In the QM guidelines, all borrowers must prove there is sufficient cash flow to make payments on their loan. Even when there is a large amount of money in reserve, it may be difficult for the self-employed borrower to get a loan approved due to this new "ability-to-repay" QM guideline.

Origination loan fees are being limited to no more than 3 percent of the loan amount.

If the mortgages don't meet the QM guidelines, the lender will be required to hold the loan as opposed to selling it to Fannie Mae and Freddie Mac.

30 Year Interest Rate Average = 7.92% Source: Freddie Mac

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