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Hope for the best, plan for the worst. Why should this apply to qualifying for a mortgage? With interest rates on the rise and property values increasing a mortgage stress test can help determine how much you can afford even in times of difficult circumstances, such as change in income or an interest rate spike when it is time to renew, refinance or buy a new property. This additional measure of protection helps protect home buyers from worst-case scenarios, qualifying for a mortgage you can afford even under stressed circumstances.
Regardless of the amount of your down payment, qualifying for a mortgage is now a little more difficult due to regulations implemented in November 2016 and again in January 2018.
Applicants are required to meet debt service ratio calculations using a higher qualifying rate rather than the actual contract rate of the mortgage. The result of these regulations changes is a 20% reduction of your purchasing or borrowing power.
Here is a look at the impact a "Stress Test" can have on the income required to qualify for a mortgage with both 5% and 20% down payment or equity in the home available.
These examples are calculated with no other monthly obligation included like car loans and credit card payments. Take note: For every $7,000 in credit card debt you carry it cancels out $50,000 of mortgage you can qualify for.
If you are renewing a mortgage this year you WILL NOT have to qualify under the new stress testing guidelines. Renewing with your current lender may be a good option for maturing mortgages, depending of course, on the renewal rate your lender if offering. But don't think that is your only option! Brokers can offer transfers to new lenders - at attractive rates with no fees - and qualifying under old guidelines. Always review your options with a broker who can access dozens of lenders.
Current homeowners looking to buy new property will have to qualify under the new stress testing rules. Mortgages are not as portable as they once were. Just because you qualified for your first mortgage doesn't mean you will qualify for the next mortgage - even if you stay with the same lender and port your existing mortgage! This could trigger higher lender penalties and impact equity available for down payment. It could impact rate and qualification.
All new purchases and refinances will have to qualify under the new stress testing requirements.
We are here to help!
We will assess your needs and expectations to connect you with the right mortgage. We’ll help you navigate the process from pre-qualification through to your closing day and beyond. From determining affordability to negotiating with lenders, we’re by your side at every step.
Ready to buy a home? We’re ready to provide mortgage advice you can count on.
As one of the fastest growing brokerages in the region, we leverage a wide network of lenders to connect you with a mortgage that works. We are dedicated to providing our clients with a trusted partner at every step of the mortgage process. We put our knowledge, experience, and passion for financial matters to work to connect you with the right mortgage solutions. Talk to us – you will be impressed.
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