When buying my first investment property I couldn’t help but be concerned with how shockingly easy it was to qualify for a mortgage. Not so concerned for myself because I was/am financially
responsible (most of the time anyway) but for others being “sold” on the idea of buying instead of starting with a stronger financial foundation. Being self employed and really not making all that much money at the time all I had to do was jump through a few hoops and badabing, there’s my mortgage. Boy, have things changed. That was a time where 40yr amortizations and declared income were blessings for people like me.
Back in November 2012 we published the most significant round of changes and it’s been fairly quiet since then. The Feds have made a few more changes with one of them really standing out.
1. Credit Card or LoC Debt – In the past the lender would use the minimum payment required to service the debt while qualifying a buyer. They will now be using 3% of the total debt as a monthly minimum payment when qualifying. Not such a big deal when holding very small amounts of debt. But this number can throw a wrench in your plans when holding larger credit card balances. Really, if you’re in that much debt, you really shouldn’t be buying property anyway. Focus on paying off the debt and revisit buying when you’re more stable.
2. New Rules for Guarantors – A Guarantor is needed when the principal applicant cannot qualify for the mortgage. This guarantor isn’t on title as property owner, but on the hook if there is a default. In the past the Guarantors’ income could be used to help qualify for the mortgage but the Feds have scrapped that. If you can’t afford it yourself, you can’t buy it. Well, the only way the Guarantors income can be used to qualify is if the guarantor is also living in the property. With most first time buyers’ Guarantors being parents, I don’t think that’s going to happen!
3. Utility Costs – For some strange reason the lenders have only used an amount between 75-100/mth when qualifying a buyer. if you’ve owned a house or condo in the past quarter centuy you’ll know that monthly utilities typically exceed $100/mth. Lenders will now be using more realistic, higher amounts when qualifying buyers. Duh.
If you’d like to learn more about these changes and how the affect you, please get in touch with our money man, Lee Welbanks, owner of Welbanks Financial. Need to know about a property you’ve seen? Call us.