Starting in a few weeks, the face of the mortgage market is expected to change \u2013 some say, radically.\r\n\r\nThat's because starting January 10th, 2014, the Consumer Financial Protection Bureau (CFPB)\u2019s new mortgages regulations are due to set in.\u00a0 In case you haven\u2019t heard of it, the CFPB is a new regulatory body established through the landmark financial regulatory overhaul, Dodd-Frank.\u00a0 It\u2019s goal: \u201cto make markets for consumer financial products and services work for Americans.\u201d (Sidenote: we think that\u2019s a great goal).\r\n\r\nUnder the new mortgage regulations, it is estimated that somewhere between 20% and 50% of mortgages originated today would fail to qualify as a safe loan, according to recent studies by mortgage compliance and research firms.\r\n\r\nBut what does this actually mean for current or aspiring homeowners?\u00a0 What do you need to know about these rules?\u00a0 And how might your decision-making change?\r\n\r\nRules Enhance Burden on Mortgage Originators to Protect Consumers\r\n\r\nFirst, a quick review of the rules.\r\n\r\nAmong the new suite of mortgage rules that the CFPB finalized in January 2013, the first rule to pay attention to is called \u201cAbility-to-Pay.\u201d To be a \u201cQualified Mortgage\u201d (\u201cQM\u201d) \u2013 the second rule to pay attention to \u2013 the mortgage underwriter must use third-party records to verify the following:\r\n\r\n \tCurrent or reasonably expected income or assets\r\n \tCurrent employment status\r\n \tMonthly payment on the loan\r\n \tMonthly payment on any other simultaneous loans\r\n \tMonthly payment for mortgage-related obligations\r\n \tCurrent debt obligations, alimony and child support\r\n \tThe monthly debt to income ratio\r\n \tCredit history\r\n\r\nThe second rule, the QM standard, outlines the criteria a loan must meet in order to be considered for purchase by Fannie Mae and Freddie Mac. The following list summarizes the requirements:\r\n\r\n \tNo excessive fees (over 3% of the value of the mortgage)\r\n \tNo \u201crisky\u201d features, such as interest-only, negative-amortization, 30-year terms or balloon loans\r\n \tNo more than 43% of a borrower's monthly income can go towards housing-related expenses\r\n \tIf the lender fails to do this, and the borrower is unable to pay the mortgage, the borrower may be able to sue the lender\r\n\r\nSo Are Radical Changes Ahead?\u00a0\r\n\r\nAfter reading headlines about the dramatic impact, we decided to sort through to see what changes really mean and can track the following three impacts:\r\n\r\n1. More Documentation.\u00a0 The simple days of filling out a loan application and attaching a credit report to get approved for a mortgage are history for most of us.\u00a0 Your W-2, bank account statements, investment account statements and tax returns are all fair game to be added to the list.\u00a0 But keep in mind: while new rules mean more work for lenders, the intention is that for you, this paperwork is more straightforward and easy to read.\u00a0 We\u2019re inclined to think that\u2019s a net positive.\r\n\r\n2. Stricter Access to Credit, or Harder to be Predatory?\u00a0 The answer to this question is both.\u00a0 It may be that the 43% income requirement makes it harder for certain groups \u2013 first-time homebuyers, the self-employed with variable incomes, and retirees with assets but no income \u2013 to get credit. But on the other hand, the QM criteria (which, notably, are generally recognized as the line between prime and subprime) in practice are actually making it harder for lenders to get away with loan features that disadvantage borrowers.\u00a0 A closer look at the numbers of the study with the disquieting headline that \u201c20% of mortgages originated today would not qualify,\u201d shows that reason the majority of those loans fail the fee test (fees are more than 3%).\r\n\r\n3. Rates May Change \u2013 but Not Likely Due to Legislation.\u00a0 Some say that higher administrative burdens might force banks to charge higher interest rates and may even put small lenders out of business. While this is theoretically true, it is balanced by the fact that Fannie and Freddie will buy mortgages that meet the QM standard \u2013 which puts downward pressure on rates. While it\u2019s true that rates may go up, it\u2019s likely to be due to other economic factors.\r\n\r\nWhat This Means for You: Stay the Course.\u00a0\r\n\r\nWith headlines about the dramatic shift in mortgage lending, it might be easy to think that the market for mortgages will disappear.\r\n\r\nBut after our review of the CFPB\u2019s new mortgage rules, it seems like they should not dramatically shift your home-buying decision.\u00a0 A good rule of thumb is to buy a home if you\u2019re going to live there for 6+ years and you would rather live in the place that you\u2019d buy than the one you\u2019d rent.\u00a0 And when you\u2019re deciding on your mortgage, think about it in the context of your entire wealth picture.\u00a0 (For tips on how to do so, see our article on how your mortgage impacts your investment strategy.)\r\n\r\nSome final tips: if you\u2019re considering a new or first-time mortgage, check your credit report. Correct any errors and clean up any problems. If you\u2019re on the border of the Ability-to-Repay and you\u2019ve got any current debt that you might pay down, it might be time to do so.\u00a0 The best credit gets the best rates and terms.