In the current lending climate, it’s easy for mortgage seekers to get discouraged. Between strong growth in prices and the OFSI’s increasingly-strict stress test, many Toronto condo buyers are struggling to get the financing they need. In this post, we’ll look at a few steps you can take in order to qualify for the mortgage you want.
The difference the stress test makes
Coupled with strong price growth, the stress test introduced at the beginning of this year has made it more difficult for borrowers to get a good mortgage.
Until recently, there was a general rule of thumb for those who could afford a 20% down payment. Provided they had no unusual debt, they could typically qualify for a mortgage on a unit that cost seven times their annual income (before deductions). Today, the same buyer can only afford a home that costs five-and-a-half times their income.
Put another way, you now have to make significantly more money to qualify for a mortgage on an average-priced condo than you did this time last year. Back then, an income of $77,000 a year was enough. If the stress test had never been introduced, that number would now sit at $86,000. Instead, it’s jumped to $100,000.
Given these changes, how can the average Torontonian afford a condo? Fortunately, buyers still have some options when it comes to securing their mortgages.
Talk to an independent broker
Are you thinking of approaching one of the big banks to get a mortgage? If you speak to one institution, they’ll tell you exactly what they offer—and nothing more. Independent mortgage brokers provide options by helping borrowers compare many lenders. Here are a few specific things that a broker can help you do:
Take advantage of lower interest rates
Some smaller lenders and financial institutions offer lower interest rates than the big banks. Independent brokers have access to more information and products than you do, so they can help you shop around. They may even be able to obtain a better rate than some banks give their employees!
Bypass a risk to your credit
If you speak to several financial institutions on your own, you’ll undergo multiple credit checks. These checks can have an overall negative impact on your credit. In contrast, a broker will ask you to obtain this information on your own, and you’ll only have to do it once.
Find the right limited-time offer
Many lenders run limited-time offers that can provide major benefits for specific borrowers. For example, some offers will allow an investor with a lower income but high equity to qualify for a mortgage without the submitting to the stress test. A broker can help you find something that will work well for your circumstances.
Prepare to qualify in the future
You may not be eligible for the mortgage you want. Talking to a broker will provide you with the information you need so that you can prepare for the move you want in a year or two.
Factors that will impact whether you qualify
If you can’t get the financing you need, there are some steps you can take to better position yourself for the future. Most of these strategies will take some time. But if you’re pining for a condo that’s currently out of reach, committing to them will be well worth the effort.
Work off your debt
Pay off your credit cards, student loans, and other debts. Creating a plan is key, so determine your debt to income ratio and focus on creating a budget that works. A debt consolidation loan may be helpful. If debt is an ongoing struggle, consider talking to a credit counsellor.
Improve your credit
Good credit is a sign to lenders that you’re financially responsible. Eliminating your debt will go a long way toward improving your credit. But you should also focus on monitoring your credit history and paying future bills on time. Keeping old cards open can also help, so long as you have the discipline to pay them off on time.
Maintain stable employment
Changing jobs while you’re seeking financing can complicate the process. You might want to put off this decision for the time being, or ask a mortgage expert for advice.
Save for a higher down payment
Your down payment can make the difference between getting a mortgage and failing to secure one. Start by creating a budget and trim your spending as much as you possibly can. Consider setting up an automatic savings account so that a certain portion of you paycheque goes toward saving. If you’re not earning enough, look for a higher-paying job or additional source of income.
Getting the mortgage you want is possible, even in the current lending climate. With a bit of dedication, time, and good financial advice, you’ll be on your way to purchasing the condo of your dreams!
Thinking about taking the first steps toward buying a condo? Feel free to ask me any questions you may have! You can either call/text me at 416-500-5360 or send me an email at rashid.notash@rogers.com and ask away!
