Years ago, it was relatively simple for consumers to head out to their local lender and receive approval for a mortgage. The ease with which people could receive loans proved to be detrimental to the overall economy when many of them lost their homes in the great housing crash that occurred during 2008 and 2009. Over the past few years, the government has begun to put the protocol in place to prevent another housing crash from happening in the future. These safeguards now mean that the mortgage market is about to get much smaller.
What is really going on with the mortgage market and what do those changes mean for consumers? Let’s take a look at what changed during the early 2010s to see how it could impact the mortgage that you were planning to apply for.
Total Debt Changes
Perhaps the most substantial rule that was put into place by the Consumer Financial Protection Bureau was a cap on consumer debt. Lenders are now discouraged from loaning to consumers who have total debt that equals more than 43 percent of their yearly income. This can include car payments, credit card debt, student loan bills, and any other monthly obligation that they have. This prevents people from borrowing more than they can reasonably afford to repay.
These changes are so significant for the mortgage market that many people are applauding the new standards. Lenders have more protection from clients that will default on their loans, and consumers have a better chance of keeping their home. Unfortunately, this will exclude some people who might have otherwise qualified for a mortgage but will now be unable to purchase a home until they can pay down some of their debt.
Interest Rates
Interest rates are one of the first things that consumers compare when they start shopping for a new mortgage. While the rates have started to decline over the recent years, there are still some that claim they are too high. This can definitely cause the mortgage market to shrink while consumers watch from the sidelines for the rates to fall once again.
One of the other major aspects of the changes made by the Consumer Financial Protection Bureau is to limit the advertisements set out by lenders. They are no longer allowed to advertise “teaser” rates that will skyrocket in later years. In a similar vein, they are also no longer allowed to offer loans that require large balloon payments that are to be repaid at the end of the loan term.
Not all changes to the mortgage market were negative though. While it is still likely to continue shrinking, there were several changes made that would make loans more accessible to moderate- and low-income families. These were much-needed changes that could help to open doors for borrowers who would otherwise be excluded by these newer policies.
When you want to purchase a new home for the purpose of investment, you should entrust it to one of the reputable property management companies. Pyramis Company can give you the help you need to rent your home successfully!