There are a lot of steps involved when buying a new home – and we’re not just talking about choosing colour palettes and finishings. One of the biggest, and often, most stressful part of buying a new home is the mortgage process.
To help, we’ve asked an Edmonton mortgage specialist Rodney Biggar, with Bank of Montreal, to share his knowledge and talk about the new conventional mortgage “stress test” rule that took effect on January 1, 2018.
First Things First, Get Pre-Approved
What is one of the best ways to prepare when buying a new home?
Talk with a mortgage specialist and get pre-approved for a mortgage. A mortgage specialist will examine your financial situation to make sure that you pass all of the requirements to qualify for a mortgage. They evaluate your income, employment, credit, debts, and assets. A mortgage pre-approval will determine the price range of properties you can comfortably afford. This way you won’t fall in love with a home that is beyond your reach. Get more information on mortgage pre-approvals here.
First-Time Home Buyers
Saving for a down payment is a challenge for many first-time home buyers. The Government of Canada acknowledged the difficulty first-time home buyers were facing and established the Home Buyers’ Plan (HBP). The Home Buyers’ Plan allows first-time home buyers, people who have not owned a home in the past four years, to withdraw money from their RRSP’s to purchase a primary residence. A maximum of $25,000 can be withdrawn from an RRSP. If you are married or purchasing a home with another first-time home buyer, each person can withdraw up to a maximum of $25,000 from their RRSP’s for a combined total of $50,000. Find out all the details and learn how you can take advantage of this option through Rodney’s helpful post here.
New Conventional Mortgage “Stress Test” Rule – The Details:
As of January 1, 2018, borrowers applying for a conventional mortgage (mortgages with more than a 20 percent down payment) have to qualify under the Government of Canada’s new “stress test” rule. The rule states that you have to qualify at the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate plus 2 percent. It’s intended to create a ‘buffer’ in your mortgage payment for when interest rates rise and trigger your payment to increase at renewal time.
The new “stress test” rule has decreased buying power by approximately 20 percent or more for homebuyers who are applying for a conventional mortgage. For example, if a buyer qualified for a maximum mortgage amount of $500,000 with a down payment of 20 percent or higher before the rule change, the amount has decreased. Now they may only qualify for an approximate mortgage amount of $400,000 or less with a down payment of 20 percent or higher. Anyone pre-approved for a conventional mortgage last year should have their pre-approval updated. Get all the details on Rodney’s in-depth blog post here.
Looking for more guidance on a mortgage? Rodney and The BIGGAR Mortgage Team are ready to help at 780.960.5897 or connect via email at firstname.lastname@example.org.
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