OK, so you are doing your best to stay up with all the things that will impact your ability to buy a home. You are fast discovering you don’t know what you don’t know and in some cases you aren’t really sure you know what you think you know. There must be seventy trillion different bits and pieces of information available on-line (give or take a trillion) and once you dive into the information pool, you realize it only has a deep end. Soon after you are swimming it becomes apparent that the water below the surface is murky. Nothing is really quite clear beyond your desire to buy a home and avoid mistakes in the process.
The latest acronym being bandied about is QRM. Sure, it sounds like something out of a high finance international meeting press release. It simply stands for Qualified Residential Mortgage. It is a measurement of the types of loans offered to consumers when purchasing a home. You are correct in assuming that it was not a subject of much conversation during the crazy mortgage days before the crash in real estate.
One of the outgrowths of the crash ( aside from every mortgage lender denying any culpability in what occurred) has been for the Government to determine what types of loans they will guarantee in the future. In the old days, everything was covered. If you wanted an interest only loan… no problem. Looking for a loan with minimal payments for a period of time with an outlandish balloon payment later on…step right up. Looking for a negative amortization loan (the amount you owe begins increasing the day you sign) … come into my office. Hello easy money….hello housing market crash….hello – what the hell just happened?
Of course, the terms were explained and of course people signed on. The loans were being offered by reputable institutions weren’t they? People wanted to buy a home and they wanted payments they could afford (so they thought). The problem was that ugly truth beneath the surface. People were given loans they could not afford and lenders made the loans because there was no risk…they were insured by the Feds. (Oh damn, the Feds are really just all of us and our tax dollars…oops!)
Well now they are putting together a comprehensive picture of a qualified residential mortgage (QRM). Recently, they decided to offer what they have so far for comment before it becomes a rule. If it passes muster, a borrower will have to make a down payment (right now the range is between 5 and 10%) and the borrower’s debt to income ratio can not be higher than 43%.
If you fall outside those marks, the bank will be required to keep your loan. Banks don’t have all the money because of your deposits, nope, they like to make loans and sell them off. If the new rules were too strict, banks would back off loans faster than I step away from guacamole.
There are other alphabet soups designations floating around as well QM, FDIC, etc. If you need help navigating the market and understanding all the things that actually will impact your home purchase, give me a call.
I am not an amateur and I am not a part-time participant in the fray. I do this for a living. I make sure that I am up-to-date on the issues that impact your process and I stay close to the things that impact neighborhoods in the area, right down to the house on the street where you want to live.
You can reach me at 301-509-5111. It never hurts to have a guide when wandering through the uncharted waters of life.