For those that heard the news this week, Finance Minister Flaherty decided to make some more changes to “cool” the housing market. At first glance this got a lot of press but when I really looked at it and considered the impact in our Winnipeg market, this will likely affect 2 – 3% of people with or looking for a mortgage.
Those most affected will be first time home buyers looking to purchase at the maximum of the range they can afford. These people may be left with no options other than a 5 year term to qualify. Let me explain, today if you wanted a variable rate mortgage or a term less than 5 years for a $200K mortgage, your qualifying payment would be $1090. If the same consumer on a $200K mortgage, decides to take a 5 year mortgage, their qualifying paymnet would be $910, a difference of $180. On a $300K mortggage, the difference is $269. These amounts are due to the fact that amortizations have been reduced from 35 years to 30 years(only for those with less than 20% down payment) For those purchasing in a hot market like Winnipeg with less than 20% down payment, you need to be aware of all these changes and how it will impact your purchasing power. The importance of a proper pre approval is even more important when you are competing against other home buyers. If you don’t have a proper preapproval, you may end up falling in love with a home only to find out you don’t qualify in the end. I have seen this too much when consumers are pre qualified at the bank. In essence the bank doesn’t obtain the information and documentation necessary to help the consumer and instead gives them an large amount that they don’t necessary qualify for. An Accredited Mortgage Professional will work with you to make sure you have no surprises or disappointments.
These rules come into affect on March 18, 2011. Please contact me if you require further clarification.
Let’s hope that future government intervention applies to credit cards and unsecured lines of credit. Home purchase is very stringent and structured with documentation and qualification standards however, credit cards do not require the same type of standards. Once a consumer moves into their house, assuming they qualify at the maximum amount, they can go out and obtain thousands in additional credit card limits and all they would need is a good credit score to qualify. How can that be responsible? If the government is really trying to protect consumers from themselves, let’s look at credit card debt next time.
Back after a hectic summer, and after spending parts of weeks in 2 U.S. markets and learning more about the U.S. real estate market, I am extremely thankful for what we have. You may have heard about recent comments relating to a housing bubble in Canada, but many experts do not agree. With talk of this it allows me to reflect on my recent conversations with US citizens, many of whom have been affected. With home equity being wiped out and negative equity positions, many Americans are faced with challenging decisions. A short sale stays on your record for 2 years and a foreclosure 5 years in the US. With those decisions in front of you, many are forced to make tough decisions. Could this happen in Canada? In this world anything is possible but how likely is it? Speculation was rampant in the US during the height of the boom, there was an assumption that housing values would keep increasing even though people didn’t qualify.
Ahhhh, there’s a word of importance, qualify. The definition of qualify is: to be or make someone suitable . This is where the U.S. market suffered one of it’s mistakes. How could someone who doesn’t qualify to make payments on a mortgage actually get a mortgage. For those that took advantage of this situation, they were able to buy big homes and other toys while those who knew better sat back and were patient. Those are the Americans now in default and in most cases owing more than their homes are worth.
This is where I find the story turns to humorous. Take a look at this article written by the NY Times where a client applied for a mortgage with Wells Fargo, a lender that used to be in Canada! http://bucks.blogs.nytimes.com/2010/08/23/wells-fargos-odd-mortgage-essay-question/?scp=5&sq=TARA%20SIEGEL%20BERNARD&st=cse The poor couple was treated like 3rd rate citizens and asked to complete an essay in order to obtain a mortgage, even being requested to ask for their “family plans”. Based on the past indescretions of lenders they have swung the pendulum in the other direction to the point of hilarity. Please read this article and let me know what you think.
Back to work, I have an essay to prepare!
There are a lot of rumours out there with a lot of consumers and I feel it is important to share the information direct from the source “The Government of Canada” on the new mortgage rule changes. First time home buyers expressing confusion if it affects them shouldn’t be concerned unless they are looking at shorter term mortgages or variable rate mortgages. If you are considering a 5 year fixed term, you are unaffected! If you are purchasing a rental property or refinancing your home for most of your equity beware of the rule changes. If you require clarification of these rules please contact me to discuss. They come into effect April 19, 2010.