By Todd Lewys
The federal mortgage stress test was introduced in the fall of 2016. Designed to protect Canadians from the accumulation of too much debt, it created new regulations when applying for a mortgage.
With these new regulations come new parameters in qualifying for a mortgage and the test.
Here are some tips to help you prepare for - and beat - the stress test.
1. Start planning well in advance. If you’re currently renting (or even living at home) and your goal is to own a home in the near future, start putting money away for that eventuality. Have regular contributions deposited into your bank account. You can never start saving too early so you can put down the biggest down payment possible.
2. Consult an Accredited Mortgage Professional (AMP). In any endeavour, the key to success is knowledge and preparation. If you feel like you are ready to buy, or are on the cusp of being ready, schedule an appointment with an accredited mortgage professional. Because they deal with mortgages — and the stress test — on a daily basis, they will educate you on the ins and outs of the stress test, and will be able to determine if you’re ready to even qualify for a mortgage. If you aren’t ready, your AMP will outline the steps required for you to get ready to qualify for a mortgage - and prepare you to pass the stress test.
3. Minimize debt. One of the biggest reasons many people don’t qualify for a mortgage is a heavy debt load. That load can be caused by things such as student loans, credit line loans, credit card debt and car loan payments. Prior to buying a home, be sure to pay off (or consolidate) all loans. And that includes a car loan. Many a prospective home buyer has been turned down for a mortgage due to a huge monthly car payment, so do not take out a car loan just before you make the move to purchase a home.
4. Be realistic. As difficult as this might be, taking a realistic approach will pay off in the long run. By looking for a home that meets your needs and comfortably fits your budget, you will free up money to spend on other things, such as items for your home and other incidentals. Not only that, but you’ll sleep better at night knowing you’ve bought within your financial means.
5. Beware of costly “official” costs. As your AMP will no doubt inform you, there’s more to buying a home than simply putting down a down payment on a property. These days, there’s a plethora of additional costs to deal with after making a down payment. Those costs include the land transfer tax, lawyers fees and various other fees — fees that, when added up, can amount to thousands of dollars in additional expenses.
6. Factor in additional costs after taking care of “official” closing costs. There are also additional costs to consider after taking care of “official” closing costs. If the home you’ve purchased is your first home or a bigger home than your previous one, you’ll likely need to buy things like a new table and chair for the dining room, new furniture for the basement rec room, new appliances — and the list goes on. Don’t forget your home may require upgrades such as a new roof, windows or flooring — or kitchen/bathroom upgrades.
The bottom line here is that buying a home is the most significant purchase you or your family is going to make during your lifetime.
Follow the tips listed above, and chances are good you’ll pass the stress test with flying colours - and land the home of your dreams! A REALTOR® can help you through the entire process and help you manage these tips.