Shopping for a luxury home? You might want to close the deal before January 10th. That's the date the U.S. government enacts stricter lending standards as the fallout from The Great Recession continues.
Beginning January 10th, the Consumer Financial Protection Bureau, or CFPB, will require lenders to underwrite only "qualified" mortgages in the jumbo category, typically loans of $400,000 to $600,000. Lenders who ignore the new standard and wind up with customers who later default face the possibility of a lawsuit.
Although the CFPB won't require specific financial documents, the overall debt-to-income ratio will be capped at no more than 43%. This will make it difficult for self-employed workers to qualify for a mortgage since their income varies greatly from year to year.
If you're considering financing a luxury home, consider the following points, according to Guy Cecala, publisher of banking industry publication Inside Mortgage Finance:
1. The features of a loan may become more attractive than the rates. Shop for the best fit.
2. Now more than ever, do not inflate income. Borrowers who stretch the truth about what they earn or about the condition of the property could be charged with mortgage fraud.
3. Watch for reworked truth-in-lending and good faith estimate documents next year. The CFPB will demand more accurate disclosures of the true cost of borrowing for mortgages in the future.