The federal agencies that regulate the mortgage market agreed to a new set of rules that could could make it easier for borrowers to get mortgages in the future. The new regulations are more noteworthy for the rules that were excluded rather than for the rules that were included. The initial draft of the regulations included a rule that would have made it more difficult for banks to lend money to borrowers making a down payment of less than 20% of the purchase price of a home. The final regulations, however, eliminated this rule which should make it easier for borrowers to obtain a mortgage. Instead of focusing on a minimum down payment, the new rules focus on the borrower’s ability to repay the mortgage and the borrower’s debt-to-income ratio.
What it Means for Mortgage Borrowers
Saving for a down payment can be one of the biggest challenges for someone looking to buy a home so the new regulations may make getting a mortgage and buying a home more accessible for more borrowers. For example, a borrower may be able to afford a monthly mortgage payment but may not have sufficient savings to make a down payment of 20% of the home price. Under the new regulations, banks may be more willing to offer a borrower a mortgage even if the he or she makes a down payment of less than 20%. It is important to point out that if you decide to make a down payment of less than 20%, banks may charge the borrower a higher interest rate or require you to purchase private mortgage insurance (PMI), which is an ongoing fee on top of your monthly mortgage payment, or FHA mortgage insurance premium (MIP) for FHA loans, which is an up-front and ongoing fee on top of your monthly payment. Additionally, most banks will likely require that the borrower make a minimum down payment of 3.5% for FHA loans and likely 5% for conventional mortgages, in addition to keeping enough money in reserve to cover three-to-six months of your monthly mortgage payment, although requirements for conventional mortgages will vary by bank. In short, the new regulations could make home ownership more attainable for millions of mortgage consumers. Check out our discussion of What Size Down Payment Do I Need to Make? and our review of Low and No Down Payment Mortgage Programs on FREEandCLEAR.
The FREEandCLEAR Mortgage Expert