Buying your first home can be super overwhelming and confusing with all the rules and regulations, especially surrounding Mortgage Loan Insurance and the Mortgage Stress Test.
Last week, I started off this 3 part series with a discussion about some Initial Steps to consider before jumping into Buying your First Home.
So, not only do you need to ask yourself, whether you have at least a 20% down payment but NEXT you need to ask whether you can pass the Mortgage Stress Test!
When did the Stress Test start?
It became mandatory in 2018, for all Canadian Homebuyers have to undergo a Mortgage Stress test, even if you have an existing mortgage and even if you have a 20% down payment.
There are a few exceptions of those lenders that don't require the Stress Test such as Provincially regulated Credit Unions and Private Lenders.
Did you know that there are options for mortgages other than from the big five Federally Regulated Banks?
And as of June 1, 2021, new rules were also put into effect!
How is the minimum qualifying rate determined?
Why is the Stress Test Important:
Because of this stress test, the majority of new homebuyers have had their purchasing power slashed by as much as 20% because they’re only eligible for a lower loan amount at the mortgage stress-tested rates. The new stress test rules have also made it more difficult for current homeowners to refinance or renew their mortgages.
Research for yourself:
Play around with some Mortgage affordability calculators and run the numbers.
CMHC has several different calculators including a
and a Debt Service Calculator
Yep! this means getting out all of your bills and household receipts to see the real numbers of what you are spending.
What does this mean for Canadians across the country?
According to the Financial Post, "Greater Toronto area buyers will qualify for an average $42,475 less than they would have under the old rules.
Vancouverites will qualify for an average $47,170 less.
Those in Montreal will see a qualification cut of $18,143 on average.
The changes are coming into effect after a record year for the country’s housing market!"
According to the REMAX Canadian Housing Market Outlook Report, this is where home prices in these cities sat in 2020, and where they’re expected to go in 2021:
Toronto $918,883 (2020, January1-October 31) $974,015 (estimated in 2021)
Vancouver $1,270,000 (2020, January1-October 31) $1,320,800 (estimated in 2021)
Victoria: $778,854 (2020, January1-October 31) $817,796 (estimated in 2021)
Cons to the new Stress Test:
Prior to 2018, first-time buyers would have been able to qualify for larger mortgages. With the new rules, it limits the borrowing range for new homebuyers thus limiting the potential properties to choose from. With a volatile housing market across many parts of Canada, the stress test has clearly made it more difficult for many new buyers to break into the market.
Are your parents helping you with your mortgage?
There are some parents that are intrigued by the low interest rates and are eager for their adult children to get into the market and take advantage of the extremely low interest rates, so they are gifting their adult children with loans, gifts or early inheritances to help them secure a mortgage. There are parents who are also co-signing with their adult children. Some have speculated that these actions have attributed to the cause of increasing home prices in this last year.
What do you think? Is this help, the cause of increasing home prices? Is it wise of these parents to assist their adult children in purchasing a home?
Likely each situation is unique so it's difficult to speculate what is best because Personal Finance is Personal.
Also, some non-first time homebuyers are just finding their home too small after so much time spent at home during the pandemic and are wanting to expand or finding that they no longer need to live and work downtown and can do their jobs from home and move out to the suburbs.
Whatever your reasons are for wanting to buy a home right now...are you planning and preparing for these big decisions?
Now Go and Be Intentional!