Bob Rowten from City Bank here. As you may know new lending rules, specifically Quality Mortgage (QM) and Ability to Repay (ATR) guidelines, will go into effect on January 10, 2014. If you are thinking of refinancing or investing in a new home in 2014 there are a few things you should know.
The following information (but not limited to) will be considered to determine your ability to repay a loan:
- Income, including statements submitted by or on your behalf in the loan application
- Credit history
- Current obligations, including other secured and unsecured debts, alimony and child support
- Employment status
- Debt-to-income ratio of your monthly gross income, including your total monthly housing-related payments, all principal, interest, taxes and insurance
- Monthly payment on the subject transaction and monthly payment on any simultaneous transaction
- Other available financial resources
A debt-to-income ratio (DTI) is the percentage of your monthly gross income that goes toward paying debts. DTIs can also include principal, taxes, fees, and insurance premiums. As a general guideline, debt-to-income should be at or below 31/43, but this really is a case-by-case scenario.
Example Using Yearly Figures:
Gross Income of $45,000
- $45,000 x .31 = $13, 950 allowed for housing expense
- $45,000 x .43 = $19,350 allowed for housing expense plus recurring debt.
You can also break this down monthly using your monthly income figures and the same 31/43 ratio.
Bob Rowten, Mortgage Officer
City Bank Mortgage