January 1, 2018 not only was it the beginning of the new year, but also the beginning of the tougher new mortgage rules for Ontarians.
Do you know how these new rules will affect you?
In the past 2 weeks I have had 2 families wanting to purchase a new home before selling their present one.
The first couple fell in love with a 3-bedroom 1900 sq. ft. house. They put in a conditional offer the day after it went on the market (conditions included finance and home inspection). My seller accepted the offer. The deposit was good, the price was right for him, the possession date was also the right timing. Everything looked good.
The buyers’ agent booked an appointment for the home inspection – still everything seemed to be going quite well. On the morning of the home inspection appt., the buyers’ agent called to say that the buyers financing fell through. Why?
They have equity in their current home, they own a successful business and have money in the bank. I am not privy to the reasons why the finances fell through, but, I suspect they did not pass the stress test in order to purchase this house without selling their current one!
The other people with whom I was working to help them find a smaller house than the one they are living in currently. On the second time out with them, they found a 1500 sq. ft., 3-bedroom bungalow with an unfinished basement. It was priced in the upper nine hundreds. I had asked them if they had been to see a mortgage specialist. They had not — they didn’t think that was necessary. After seeing their mortgage specialist we spoke and they had decided not to look for a new house. They would just stay where they were. (I would caution prospective buyers to get opinions from 2 or 3 other specialists as they all have different contacts in the finance world and one of them may be able to assist you.)
DID YOU KNOW?
Credit Unions are not subject to the same stress test
as Mortgage Brokers and banks, etc. This might be
What is the stress test you may ask? The stress test means that financial institutions with vet your mortgage application by using a minimum qualifying rate equal to the greater of the Bank of Canad’s five-year benchmark rate (the last reported rate was 5.14%) or their contractual rate plus 2 percentage points which means that EVERYONE has to qualify at a rate of 7.14% whether you have 5% to put down or 20%.
This may mean that you will have to settle for a less expensive home that you would have bought prior to January 2018. These new rules might force Canadians to set their sights on homes that are up to 20% cheaper. But since few home buyers are stretching their finances to the limit when applying for a mortgage, the average target price reduction will likely be smaller, $31,000, or 6.8%, according to Will Dunning, Chief Economist at Mortgage |Professionals Canada.
Of the 100,000 or so prospective home buyers that will hit a snag because of the stress test. Dunning estimates that about half will be able to make a different purchase than they had planned. The rest will give up on a home purchase.
The moral of this story is:
Before you start looking at homes to purchase, PLEASE go to see a MORTGAGE SPECIALIST!
For more information about real estate, please feel free to telephone me at 647-449-6642.