Is the pandemic over yet?
Many lives have changed, temporarily and permanently due to COVID-19 and many just want it to be over so that they can resume to the so-called “new normal”.
According to a survey done by Zolo, up to 37% of Canadians are still planning to buy a home this year despite what happened despite the pandemic.
The Latest News on Mortgages
As of June 5, 2020, the Canada Mortgage and Housing Corporation (CMHC) announced that they’ll be implementing stricter requirements in getting an insured mortgage starting July 1, 2020; some of which are listed below:
- Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to our standard requirements of 35/42.
- A minimum credit score of 680 for at least one borrower.
- Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes.
This move may make it harder for some Canadians to acquire a home especially if they’re credit score is below 680; in addition, future home buyers need to consider using their own savings to use for a down payment instead of borrowing it as part of their mortgage.
However, it’s noted that this move is not mandated by the Department of Finance and therefore it’s up to other institutions whether they’ll adopt this mandate.
Situation of Lenders
Regardless of the troubles that the pandemic has brought, the housing market is slowly getting back on its feet and mortgage lending along with it.
With the announcement from CMHC, lenders like Canada Guaranty and Genworth Canada are a bit skeptical of the move. According to True North Mortgage Founder and CEO Dan Eisner:
“I would argue against tinkering with mortgage underwriting criteria in light of the pandemic-driven housing market slowdown. Some of these changes may be needed, but the timing is questionable…it’s as silly as buying an umbrella after a flood. Now is the time to be encouraging economic activity.”
While the move from CMHC is well understood by other mortgage lenders and some may even adopt the policies in the future, new home buyers must be ready with their credit scores and down payments to be on the safe side.
The Effect on Consumers
If these regulations were to be adopted across the country, how’ll Canadians with meager means be able to afford their dream home?
For low income earners, the government has set up various financial assistance programs that could help in their first home purchase. In addition, choosing the right location can also play a huge role in your budget.
People most vulnerable to mortgage disapproval
With the COVID-19 ongoing, getting a mortgage can be an extra challenge for the following groups:
Since businesses are just beginning to dust themselves off after the quarantine period, their income stream may not be as consistent as before. Depending on their industry, some may even need a longer time to recuperate from losses. Your income stream is crucial to a lender because it determines affordability.
Low credit score applicants
If the 680 and above credit rating is implemented, applicants who have past dues or high debts might need to think of options on how to pay it off to boost up their credit score.
Little to no available down payment
Not everyone has the privilege of receiving a down payment as a gift from parents or relatives. If your savings were eaten away by the COVID-19 crisis, you must find an alternative means to secure the money because buyers will no longer be able to borrow money for a down payment.
4 Keys to Getting Your Mortgage Approved
Despite the more stringent measures being imposed by lenders to borrowers, you can still get your mortgage application approved. Here are some tips to increase your chances of approval.
1. Get help from a trusted Mortgage Broker
Mortgage brokers will be the link between you and a variety of lenders. They’ll give you advice for mortgage options based on your financial standing and will guide you through the whole process.
2. Have your documents together
Applying for a mortgage is scary enough with all the hoops that you have to go through; best to have the necessary documents compiled such as your financial statement, government identification, income statement, etc. so that once you meet with a mortgage broker, you can start the process right away.
3. Know your budget
This is very important because your success in getting a home loan depends on affordability. What you need to do is to add your monthly income and minus it from your monthly expenses and then you do the math.
4. Pay off debts
Having a high amount of debt can seriously affect your credit score; if you have a way to pay these off before applying for a mortgage, do so right away. Know that lenders will look at this very closely because it’s an indicator if you’ll be able to pay on time.
Times may be tough at present; it takes a lot of willpower to restart and move forward in making your dreams happen.
Don’t let the pandemic bog you down; most of the information you’re receiving may be bleak but having the right mortgage broker in your corner will go a far way.