Now is the time to get pre-approved!

The biggest change by far in 2017 was in regards to conventional mortgages

So 2017 was an exciting year in the mortgage world!

The problem is that we mortgage professionals really hate it when things get exciting. Between the economy and the federally mandated mortgage rule changes and their ensuing fallout, it is now more important than ever to get a solid pre-approval in place.

I am not just speaking to first-time home owners either! Before you list your current home or refinance your mortgage or consider buying a rental, you need to make sure that you qualify under the new mortgage rules.

The biggest change by far in 2017 was in regards to conventional mortgages.

This is the term given to homes which have more than 20% equity. Previously mortgage lenders could put mortgage default insurance in place at their own expense.

They are no longer able to do so on mortgages taken for refinance which increases their risk and so increases the interest rates offered.

The second major change was the mortgage lenders are now required to keep a certain amount of cash reserves in place for all loans they fund. That means these funds are not available to lend out and therefore they offer higher interest rate to account for the lost revenue.

The third and most significant change is that all mortgages must now qualify at a higher interest rate.

Basically, no matter which term you are selecting you will have to qualify at the Bank of Canada posted rate which is currently 5.14% OR 2% higher than the contract rate you are being offered. If you are choosing a mortgage with a rate of 3.89%, you will have to qualify at a rate of 5.89%.

The mortgage rate you are given will be less than this and will be based on whichever term you choose.

The rationale is that there is no way rates were going to stay at 3.29% and all of a sudden a lot of people could be hit with a significant mortgage payment increase which could mean increased foreclosures.

So the things you need to know:

1. Rates have climbed since the rule changes were announced so if a new home is in your future get a rate hold in place so you are protected against further increases. Most are good for 120 days

2. Make sure they are checking your credit and not just seeing how much you are qualified for based on your income. Can you imagine selling your home only to be told that you do not qualify for the financing on the next because of something on your credit bureau? It has happened, I assure you.

3. Given the variety of ways in which we all get paid, you also need to make sure your pre-approval is solid given your situation.

For example, the mortgage lenders require a two-year history on all variable income. That means if your income is commission, bonuses, overtime or shift differential then you will need a two-year history of it before it can be used for the mortgage qualification.

4. Porting is an area which is slightly misunderstood.

You will have to qualify for the mortgage under the new rules even if you are just moving the mortgage from A to B. Please refer back to the previous horror story of the people who had sold and then could not buy a new home.

5. Ironically the changes now mean that with more than 20% to put down, you will be offered a higher interest rate than someone with 5% down.

6. Rental properties have been heavily hit by the changes.

Our economy means that fewer lenders are willing to consider these mortgages to start with and those that still are have upped the ante. Some have increased the minimum down to 35% from 20%.

Others require a very strong net worth in liquid assets. If you have multiple properties make sure they are reporting on your taxes.

So that’s about that.

A solid pre-approval from a qualified mortgage professional is a very good peace of mind strategy for both the new home buyer and you veteran buyers.

Pam Pikkert is a mortgage broker with Mortgage Alliance – Regional Mortgage Group in Red Deer.

Just Posted

WATCH: Ronald McDonald House Central Alberta hosts Barnyard Breakfast

FortisAlberta makes $10,000 donation to House operations

Innisfail RCMP charge woman in connection with seizure of eight dogs

Karin Adams, 46, of no fixed address faces dozen charges

WATCH: Red Deer’s Westerner Days kicks off to a smoking hot start

Thousands take in the food, entertainment, rides and more at Westerner Park

WATCH: 2018 Westerner Days Parade brings 1000s to downtown Red Deer

The parade begins five days of western fun and culture in Central Alberta

Innisfail RCMP seize eight dogs from hotel room following earlier arrest

Dogs were in distress and taken to an animal rescue organization

WATCH: Tune into What’s Up Wednesday

An overview of the week’s news in Red Deer

World’s translators push back on forcing Trump interpreter to testify

Democrats had asked translator to testify about Trump’s lengthy conversation with Putin in Helsinki

Canadian government threatens to retaliate if Trump imposes auto tariffs

U.S president had suggested that auto imports pose a national security risk to the U.S.

UPDATED: Airdrie man charged after Taser-like weapons seized

Canadian Border and Airdrie RCMP charged a man after an attempt to bring the weapons into Canada

Ontario, Saskatchewan premiers join together to oppose federal carbon plan

Saskatchewan is already involved in a court case over the tax

Sylvan Lake is moving toward a greener town

The Town of Sylvan Lake is moving forward with a contract with Fogdog Energy

Wetaskiwin RCMP investigate theft of almost $140,000 value in Millet

Wetaskiwin RCMP respond to past break and enter at a rural Wetaskiwin property

After cave rescue, soccer boys pray for protection at Thai temple

On Wednesday evening, the boys and coach were released from hospital

Gymnastics sex abuse victims join hands, accept courage award at ESPYs

The women who spoke out against the abuse by Larry Nassar stood together Wednesday night

Most Read