Qualified Mortgages and Its Impact on the VA Loan Borrowers

There’s a new type of loan called the ‘Qualified Mortgage’. Most of us have heard of it, especially prospective homebuyers who question the impact that it will have on their home mortgages. For example, retired or active duty military servicemen are speculating about the impact that these changes will have on their ability to get the benefits of a VA home loan.

The financial slowdown of 2008 led to the introduction of numerous stringent rules and regulations. This was done to put restrictions on giving away easy loans and to reduce the possibility of loan defaults. However, such restrictions have made life difficult for borrowers who are looking to buy a home. At the same time, the government has been implementing and modifying new mortgage policies to provide relief to these borrowers, and a Qualified Mortgage is one of them. There are some specific policies that have been implemented by certain U.S states. The perfect example would be the various programs and initiatives being taken by the government in Texas; especially its impact on the veteran home loan in Texas.

What is a Qualified Mortgage?
Qualified mortgages mainly focus on the safety and affordability of prospective homebuyers. During the 2000’s, many lenders provided mortgages to a large number of borrowers who had poor credit scores and who were not in the situation to pay back the loan. These subprime loans were the main reason that contributed to the financial meltdown and led to the collapse of the housing market.

The scenario mentioned above eventually led to the introduction of the qualified mortgage. The qualified mortgage does not have the risky features of other mortgages and it ensures that the borrowers can afford to repay the loans that have been sanctioned. Regulators have also laid down eight credit and underwriting requirements that must be met to obtain Qualified Mortgage status. Mortgage companies can still provide loans that do not meet the standards of a qualified mortgage, but those loans will not get protection as per this regulation.

The Effect on VA home loans
People who are worried about the impact that qualified mortgages will have on VA loans have a reason to smile. The good news is that it will not have much impact on the VA loans. These underwriting guidelines have been followed by most of the lenders over the years. Hence, no additional action needs to be taken to comply with these underwriting requirements.

In fact, VA loan borrowers will get some added advantages as it will limit the costs involved in obtaining a mortgage. It has been estimated that around 92% of the loans that have been taken out meet the requirements of a qualified mortgage. The other 8% of the loans either exceed or have a higher annual percentage rate (APR) than allowed. This shows that the new guidelines will not have much impact on a majority of home loans.

Buying your First Home? Check out the types of Loans you can get

Do you think that it’s time to realize your dream of buying your first home?

It’s the dream that every American has, but low cash reserves and a strict lending market make things difficult. Especially, when the economy has been low and is hardly showing signs of recovery.

There are recent updates on stricter loan requirements for 2014. These new rules will be more tied to the borrowers’ debt-to-income ratio.

Types of Loans to explore
Despite all the odds stacked against borrowers, you needn’t put off your plans just yet. There are various loan options available that will fit your requirements. But prior to that, let’s know about the major loan types and their eligibilities.

Usually, there are two major types of home loans, conventional and government.

1. Conventional Home Loans

Conventional loans are given by banks, private lenders or mortgage companies. The interest rates of these loans are based on the current market trend. The following types of loans are available:

Fixed-rate Mortgage: In this type of loan, the rate of interest remains fixed. Borrowers pay a fixed mortgage amount as repayment on a monthly basis, and the interest rates don’t vary with the changing market rates. However, the interest rates of this loan are comparatively higher than FHA, VA or USDA. Also, the guidelines are more stringent in terms of debt-to-income ratio and credit score.

Adjustable-rate Mortgage (ARM): An adjustable-rate mortgage initially offers a fixed interest rate, and later the rates become adjustable based on the current interest rates in the market. However, the rate during the adjustable period is uncertain, and borrowers may end up paying steep interest on their loans due to market adjustments.

Other or Jumbo Mortgages: Borrowers who don’t have good credit scores can get these types of loans. Such loans have a higher credit limit than the more typical ones. At the same time, jumbo loans have more risks involved because if borrowers default in payment, they will have a significantly higher amount payable than on other loans. Hence, these loans require a higher down payment.

2. Government Home Loans

These loans are guaranteed by the government for people who find it difficult to obtain conventional loans due to strict eligibility issues. Various types of these loans are mentioned below:

Federal Housing Administration (FHA) Loan: This is a program initiated by the U.S Federal Housing Administration (FHA). The objective of this program is to help more families and individuals with low income to afford home loans. Interest rates of these loans are lower than the conventional loans. However, total interest rates and fees are higher in FHA loans.

Veteran Affairs (VA) Loan: VA loans are offered by the US Department of Veteran Affairs to veterans of armed services, or to their families, for obtaining long-term financing. It’s a good option for borrowers who are not eligible to receive private financing, as they can buy a home without making a down payment.

USDA Loan:

This loan program is offered by the US Department of Agriculture (USDA). These loans are guaranteed by the Government and no down payment needs to be made. USDA loans are structured to be repaid over a period of 30 years.

Getting a home loan is an important step towards fulfilling a lifelong dream. Hence, you need to do your own research to find a lender that has extensive knowledge and expertise to guide you in every step. Despite borrowers not meeting eligibility criteria for conventional lending, a reputed lender can educate and assist them in getting home loans through a structured process.