Well, it’s been five years since the beginning of the end for easy deals in the mortgage industry. Banks and lenders are getting the squeeze from politicians and their new laws regarding mortgage rule changes. We’ve been talking about this so-called paradigm shift coming for many years and now it’s time to prepare.
First item on the list to point out is that it seems that more prudency has entered our mortgage industry making it a little bit more difficult to complete mortgage financing. Expect the banks and lenders to ask for more and more information about every minute detail of your financial status.
For example, your gifted down payments will need to not just be proven via a deposit into your account with a simple letter, you’ll need to obtain the donor’s bank account history as well, and apparently not just a snapshot, but 90 days’ worth (not here yet).
Apparently as of Jan. 1st 2015, this will be in effect. I have trouble with this one especially since they are requesting verification from the third party donor’s account information to validate the down payment. It’s a privacy issue.
If the gift is above a certain amount coming from out of country, I expect that, but if it’s coming from a family member in a denomination of less than $20,000 and it makes common sense, let’s simply move on.
CMHC announced on April 25 that there are some major changes coming for a few of their products. The ‘stated income’ for self-employed individuals with 10% down payment is now gone as of May 30, also no longer are Canadians able to purchase a second home (meaning condos, recreating properties etc., not to be misconstrued as your owner occupied home) with only 5% down payments and they’ve also limited CMHC insurance financing to only one account with CMHC.
This last one means if you bought a house with 5% down payment in the past with CMHC, but are going to keep that one as a rental while moving into another owner-occupied property and purchase it with a 5 -19.99% down payment, CMHC won’t be able to help you. Good thing we have access to other mortgage insurers such as Genworth and Canada Guaranty to help us out with this one.
My estimation for the reasoning behind this is those are the accounts with the highest delinquency, meaning the highest risk, thus they remove the product.
To add to it, lenders with pre-approvals are going the way of the dinosaurs as well. It costs lenders money to set aside the funds, and sometimes those pre-approved clients don’t close with that lender, thus they simply take away a product that is inefficient at best and costs them money that they don’t get to recoup.
With our increasing values in our Alberta market it’s making consumers react quickly and impatiently. They are coming ill-prepared just to get into a home and the government is setting laws to ensure vigilance. So, stretching the rules, making exceptions to rules/policies will be more and more difficult to obtain if even possible in the future.
Ideally your deal should be presented as follows: you’ve saved up your own down payment (at least 50%, maybe other half is coming from your parents) AND have it all prepared nice and clean in a couple of accounts that you haven’t transferred money from all different sources, you’ve been at your job for a minimum of three months and if so short, preferably the industry for two years plus.
The longer the better. Same goes for credit, they want you to have two years of credit, with two different loans over $2,000 with no late payments, and that’s the minimum with no derogatory credit. So if you’ve had 20 years of great credit, but got upset at your cell phone company (or other lender/credit card company) and have a small collection with them, be prepared to pay that bill, and explain your reasoning.
This may seem easy and straightforward, but a strong seller’s market like this forces consumers to move quicker than they are actually prepared.
The paradigm shift is no longer coming, it’s here.
For sure, I disagree with many of these new rules and regulations that are coming. And in the mortgage industry, there’s always been change. However, if you look at this in a positive light and actually prepare yourself properly with the right mortgage education to purchase a home, then you’ll be fine and the process won’t be difficult. But, if you are going in and reacting to the market and are haphazardly ready, you aren’t going to have a good time.
Jean-Guy Turcotte is a mortgage broker at Dominion Lending Centres-Regional Mortgage Group in Red Deer.