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Qualifying for a mortgage may be more challenging in 2014

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Posted: Friday, December 20, 2013 11:45 am

So you’re going for it — a new home! But when it comes to applying for your new loan, there are eight new requirements that go into effect starting in January you’ll want to become familiar with.

Typically referred to as Dodd-Frank, the Dodd-Frank Wall Street Reform and Consumer Protection Act is being further adjusted. The legislation was ushered in as a response to the recession, making changes that affect federal financial regulatory agencies. The legislation also reaches broadly into the financial services private sector.

While Dodd-Frank may not have been popular, it may help to ensure that borrowers are adequately prepared to take on home ownership. Be certain to become familiar with how the new criteria may affect your ability to obtain a loan, including:

1. Adequate income or assets to cover your mortgage payments.

Traditional mortgage lending includes the “4 C’s:” capacity, cash, credit, and collateral. This refers to the borrower’s ability to repay the obligation through income or assets, and whether there are sufficient funds to make the monthly mortgage installment. Be certain to allocate for all of your expenses before determining how much you can afford.

2. Proof of employment or income from self-employment.

Having a full-time job is one of the surest ways to guarantee income, as a lender views tenured employment as a means to secure regular payments. Self-employed borrowers must demonstrate a two-year track record in the same business, along with two years of federal tax statements to prove their income.

3. Proof that you can afford property tax and homeowner’s insurance.

In addition to principal and interest payments on your mortgage, Dodd-Frank requires documentation of every payment associated with the property and what it entails. So it’s important for borrowers to understand property taxes, homeowners insurance and the possibility of additional fees like homeowners association (HOA) fees to calculate the true cost of each monthly payment.

4. Factoring in of additional mortgages.

Dodd-Frank requires lenders to include both payments for homeowners who might have more than one loan on their home, like a second mortgage or a “piggyback loan” when calculating whether a borrower is qualified.

5. Full disclosure of any additional properties you owned by borrowers.

The lender needs full disclosure of the total monthly obligations on all of the borrower’s investment properties, second homes, vacation homes, etc.

6. Factoring in of child support or alimony you pay.

Lenders will be required by law to include expenses such as alimony and child support in their calculations. Borrowers might qualify based on income and debts alone, but monthly child support or alimony payments could have a major impact on ability to pay.

7. Debt-to-income ratio that’s lower than 38 percent.

The debt-to-income (or DTI) ratio is one of the primary tools lenders use in determining whether a borrower qualifies for a new loan. To calculate your DTI ratio as a percentage, divide your monthly debt by your gross monthly income (before taxes), and multiply that number by 100. This validates the loan is a safe one.

8. Clean credit history and a good credit score.

A strong credit score is very important to a lender because it’s a viable indicator of a borrower’s ability to repay their obligations. It can determine whether or not you may qualify for a loan and what interest rate you will have to pay. Get a copy of your credit report and do whatever you can to improve your score. Dispute any errors that can be detrimental to your score and payment history. Under federal law, the three primary credit agencies — Equifax, Experian and TransUnion — are required to provide consumers with one free copy of their credit report each year.

For further information, consult with your mortgage banker or lender.

• Bonny Holland is with Keller Williams, Sonoran Living in Ahwatukee Foothills. Reach her at (602) 369-1085, www.leadingluxuryexperts.com or on Facebook and Twitter.

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Keystone Montessori

[David Jolkovski/AFN]
Teacher Pily Pantoja helps Sarah Wang, 4, with the addition snake game at Keystone Montessori on Thursday, Sept. 4, 2014.

Keystone Montessori has come a long way since its founding in 1995. Back then it was operated out of the founder’s home before eventually moving on to rent rooms from Horizon Presbyterian Church. It was only in 2000 that they had gained a strong enough enrollment to move into the facility where they currently reside on Liberty Lane, just off Desert Foothills Parkway and across from the Ahwatukee Foothills Family YMCA.

The school services students as young as 18 years old, as part of their toddler program, and as old as ninth-graders. The current enrollment is around 320 students, who all have access to Spanish, music and arts programs in addition to the full Montessori curriculum.

“We provide an authentic Montessori education which focuses on the independence and whole development of the child, including academic as well as social and emotional growth,” said head of school Cindy Maschoff. “We want our students to become independent citizens of the world.”

The school will be taking the time to present the concept of Montessori education to the public Jan. 29 and 30. At the presentations the school will provide a clear understanding of what Montessori education looks like at each level of education. Those wanting to attend should plan on going to both meetings, with the Jan. 29 meeting going from 6-7 p.m. and the Jan. 30 meeting from 9 a.m. to 1 p.m. The meetings require attendees to RSVP, which can be done by emailing laura@keystonemontessori.com.

For more information, visit keystonemontessori.com.

• Compiled by James Gingerich.


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