More and more mortgage lenders are optioning to put in the changes being asked for in regards mortgage qualification rules. Now this is not new news, just that more and more of the lenders are picking up these new ways to qualify your mortgage approval or pre approval. Lots of people are confused over some of these changes, so I am going to try to put it into black and white type. It does however make it more paramount to have a mortgage agent on your side, and not an order taker to make sure you have the best mortgage product and rate that works for your individual or family needs. Someone that knows what is going on in the industry on a regular basis, and knows who does or does not do what. Remember in one of my other posts, when I mentioned, "Jack of all Trades - Master of Nothing"
The things that have changed (and are being put into practice with more and more lenders) are as follows:
1) Unsecured debt is being qualified with a 3% payment based on the balance outstanding. What this means is regardless of if you have a low interest rate credit card or personal line of credit, the payment used to qualify you will be 3% of what you owe. For example: on a $10,000 Personal Line of Credit - maybe your payment with the bank is $150. You will have to qualify on your mortgage application using a $300 payment.
2) Now the largest change that does affect things is this one. On Unsecured Lines of Credit. Now, some lenders still allow you to use the provable payment amount you have on the outstanding debt. But these lenders are becoming few and far between as more are getting onto this band wagon. What is happening is this. If you have for example a rental property with a $390,000 HELOC balance and a limit of $500,000 and your provable payment is $1250.00 per month. What the lender is requiring now is this, 4.6% of the available limit. So in this same situation, the payment being used on the mortgage application for qualification would be $1916.67 per month payment to qualify.
** you can start to see how this changes the face of how mortgage are being qualified and the purchase prices that can be obtained **
3) No more Cash Back for Down Payment (although there are still cash back options, but you have to prove the min 5% down payment and have A1 Credit to qualify): however keep in mind, that the lenders that are doing this are getting few and far between, and the ones we currently have doing it, require you to meet a tonne of requirements to get the approval.
4) Million and One Dollar purchases, have to have min 20% down to get approved, and most have CMHC or GE backing behind the scenes. Use to be just the sliding scale for a majority of lenders for approval numbers, but the min 20% has changed things. Granted, if you are purchasing a million dollar property you should have some money behind you.. but still, it changes how you move your money around at the end of the day.
5) Stated Income lenders are becoming less and less - and min of 10% down required (5% own funds) and a hefty CMHC premium is added to your mortgage numbers. Going to 4.75% from the usual 2%!
6) Child Tax Benefit is no longer a source of income that can be added (with most lenders)
7) Some lenders are also not allowing Guarantor income on an application unless it is spousal or spousal interest in the property or the guarantor resides in the property
8) Heat Caculation: it is now done based on $0.75/per sq foot of
property. That means if you have a 1500 sq/ft property x $0.75 =
$1125/12 months = $94.75 to use in the heat caculation. This does change
ratios sometimes; considering we could just use $50-85 prior, unless of
course it was Servus Credit Union then we use $200 (which is actually
more accurate anyhow)
9) New Builds Property Tax Caculation: the Insurers/Lenders are going to use 1% of the purchase price when Caculating property taxes... this being said I know of one or two lenders currently that are using this model. Unless we can prove what the exact taxes are, the 1% will be used. Of course for existing houses, the property taxes can be proven via mls or solicitor
9) New Builds Property Tax Caculation: the Insurers/Lenders are going to use 1% of the purchase price when Caculating property taxes... this being said I know of one or two lenders currently that are using this model. Unless we can prove what the exact taxes are, the 1% will be used. Of course for existing houses, the property taxes can be proven via mls or solicitor
Now this is not the end of the world, yes it makes it harder to qualify, but in the same breath not really - it lowers what some individuals can qualify for. It means, "Yes" you should be talking to a mortgage agent, whether that be myself or a some other mortgage agent, you need to have someone that is looking out for your best interests and not an order taker. It also means that you need to start looking at your mortgage and your long term goals - which is a good thing, you should be doing that anyhow. Just because there are now some definite black and white guidelines - it does not mean there are not multiple mortgage products out there for you and your situation.
Give me a call today to talk about your mortgage options. Whether you are just getting into the market as a First Time Home Buyer, or whether you are a seasoned veteran ... these changes do affect you. Get it done right the first time. Make the call.