One glance at the figures for 2020 shows overall mortgage debt in the U.S. reached record highs. That means more people than ever before are taking out home loans. That is despite the many problems they have faced throughout the course of 2020, especially in terms of unemployment and finances. As we go through 2021, what are the regulations regarding home loans, and what has changed in comparison to previous years?
One of the major changes expected with home loans in 2021 was the expiration of the “GSE Patch.” This was imposed by the 2010 Dodd-Frank Act following the 2008 financial crisis, and in 2018, 18% of mortgages were issued under the GSE Patch. Mortgages issued under the provision of the Dodd-Frank Act protected the loan from misleading features, and the majority of borrowers must meet a specific debt to income ratio to obtain the home loan.
The GSE Patch was scheduled to expire on January 10, 2021, but this has since been extended to September 2022.
Another of the home loan changes expected from the Consumer Financial Protection Bureau was regarding the strict 43% debt-to-income ratio, but again, nothing concrete has changed in 2021. So, many of the changes to mortgages that we expected to see at the beginning of the year have yet to come to fruition, but the change relating to the 43% debt-to-income ratio could still be enforced. The initial changes were being pushed by President Trump’s administration, and it was going to replace the current 43% debt-to-income ratio limit with a price-based limit. This gives the lender greater scope to make decisions for themselves in relation to the borrower’s likelihood to repay the home loan.
However, despite many lenders welcoming the proposed changes, consumer advice groups have not been as keen. They believe the changes being made will allow banks to target vulnerable borrowers and could lead to millions of people getting into financial trouble with their home loans.
Thankfully, you do not have to sit in the hands of a bank or financial institution when calculating your home loan. For those who have little experience in the financial world, and that is the majority of people, obtaining a home loan can seem a daunting prospect. This is especially true if you are a first-time homebuyer, as all the details involved can look extremely complicated.
However, if you take the time to sit down and break up the process into smaller, manageable pieces, it becomes a lot easier. One of the main concerns all new homebuyers have is home loan interest rates. A small change in the interest rates can mean a significant jump in the monthly payment you need to make on your home loan. For example, a jump of 0.5% in the interest rates on a $250,000 home loan means a potential increase of about $75 a month on your payment, and that soon adds up. In fact, it would mean an additional payment of $26,000 over a 30-year loan, which is a significant sum of money.
So, take your time when applying for a home loan and ensure you have all the information to hand before committing.