Did you know new mortgage changes and regulations are coming that will have a significant impact for home buyers? Effective January 1, 2018 the new Residential Mortgage Underwriting Practices and Procedures (Guidelines B-20) will be applied to all federally regulated lenders.
The changes to the guidelines focus on:
- the qualifying rate for uninsured mortgages
- expectations around loan-to-value (LTV) limits
- restrictions to purchases designed to work around those LTV limits.
What does this mean for homebuyers? I spoke with Geoff Lee of GLM Mortgage Group to give you the full details.
“The new guidelines will require that all conventional mortgages (those with a down payment higher than 20%) will have to undergo stress testing. Stress testing means that the borrower would have to qualify at the greater of the five-year benchmark rate published by the Bank of Canada (currently at 4.89%) or the contractual mortgage rate +2% (5 year fixed at 3.19% +2%=5.19% qualifying rate).”
These changes effectively mean that a buyer’s borrowing power is directly impacted—up to a decrease of 25%. Let’s look at an example:
BUYING A HOME
When buying a home with these new guidelines, borrowing power is also restricted. Using the scenario of a dual income family making a combined annual income of $85,000 the borrowing amount would be:
Current Lending Guidelines
Qualifying at a rate of 3.34% with a 25-year amortization and the combined income of $85,000 annually, the couple can purchase a home at $560,000
New lending Guidelines
Qualifying at a rate of 5.34% (contract mortgage rate +2%) with a 25-year amortization and the combined annual income of $85,000 you would be able to purchase a home of only $455,000.
OUTCOME: This reduces your borrowing power by $105,000. I’m sure you’ll agree that’s a significant amount.
*For more information on the other guidelines, read GLM’s full article HERE
In the above scenario, it is a scary thought that you would qualify for 20-25% less than you would under today’s current lending guidelines. In our Fraser Valley markets, this is exceptionally significant when the average detached home price is well above $800,000.
What can be done? If you are thinking of buying, you may want to do so before these new guidelines take full effect in January of 2018. The market has maintained high median prices and low inventory over the past several months—and with the rate increases plus this new announcement- it is getting harder and harder to buy a home. Don’t wait- give me a call today and let’s meet to discuss how you can win! And remember, here at Young Real Estate Group, we get you more.