New Mortgage rules: Ability to Repay
The eight factors Ability to Repay creates in underwriting a new mortgage.
These eight Ability to Repay factors a lender must consider when reviewing a new mortgage loan application will cause a number of people not to be able to get a mortgage, and therefore not buy a home. Is that a good thing or bad thing only time will tell?
Here is the list of the eight elements the new rule Ability to Repay (ATR) creates in mortgage lending.
One. The current or reasonably expected income or assets that the consumer will rely on to repay the loan is the income consideration for the loan. Also this is other than the value of the property that secures the loan.
Two. The current employment status (if you rely on employment income when assessing the consumer’s ability to repay) is the basis for income qualification. Not future or projected income.
Three. The amount of the monthly mortgage payment for this loan is calculated. The calculation is determined using the introductory or fully indexed rate, whichever is higher, and monthly, fully amortizing payments that are substantially equal.
Four. In addition the monthly payment on any simultaneous loans secured by the same property must be included in the Ability to Repay rule.
Five. Monthly payments for property taxes and insurance that are required the consumer to buy, and certain other costs related to the property such as homeowners association fees or ground rent are added into the full monthly payment.
Six. Debts, alimony, and child support obligations are to be added into the Ability to Repay considerations.
Seven. Monthly debt to income ratio or residual income, that is calculated using the total of all of the mortgage and non-mortgage obligations listed above(3,4,5,6) as a ratio of gross monthly income.
Eight. The consumer’s credit history is part of the Ability to Repay factors.
The reasonableness and good faith of the determination of Ability to Repay depends on the facts and circumstances relevant to the particular loan.
Dan Parisi is CEO of Coffee Real Estate
916 481 8106
Real Estate agent & Mortgage expert
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