An Overview: Mortgage Rule Changes Under COVID-19
The mortgage landscape seems to be ever-changing. As recent as 2018, the implementation of Stress Test rules had a significant impact on the process of obtaining a mortgage for many Canadians. This rule alone has reduced affordability by as much as 30% in some cases.
Enter the COVID-19 pandemic of 2020. To say COVID-19 has taken ordinary structure and turned it on its head might be an understatement. Early on, there was quite a bit of uncertainty on what implications there may be for the world of mortgages. Some private lenders stopped lending, other substantially reduced the maximum they were willing to lend out of concern for property values, or they buckled down on requesting verification of income.
Several months later, the initial chaos has appeared to settle, though mortgage rules are staying on the more conservative side. While many markets are back up and running, it is unlikely that the process of obtaining a mortgage or refinancing will look anything like it was pre-COVID.
When applying for a mortgage or a refinance, here are a few major things you can expect:
Variable Response Times
The increase in remote work has changed the way many of us work and lending employees are no exception. You may experience a longer than typical wait to have your application reviewed, as there may be delays with files and/or increased demand for their services.
Ideally, lenders will want to see that clients have liquidity. Having proof of additional savings and/or investments adds insurance that they have a cushion to sustain themselves after making a down payment and paying closing costs.
Down Payments on Rental Property
Many lenders are no longer offering a HELOC, or Home Equity Line of Credit, to be used for down payments on rental properties.
Some lenders may want to know more about your tenants and whether they are keeping up on payments, especially if you rely on tenant payments to meet your bottom line.
Mortgage Deferral Programs
While mortgage deferrals under the pandemic do not impact your credit score, they might ultimately impact your ability to take out any new mortgage applications, as the deferral registers on your credit bureau. Though it is rare, with a thorough explanation and strong case for your financial stability, applications might still be accepted despite a current mortgage deferral reported on your credit bureau.
What Lenders are Looking For
If you are self-employed, many lenders will request an extensive history of tax returns among other financial information. In some cases, lenders are requesting all business statements for the year 2020 to assess how you and your revenue have been affected by COVID-19. They may look for government aid payments, changes in revenue, and other documentation of financial impacts.
In sum, the world of mortgages is sure to continue evolving. While it can be expected that lending will remain relatively conservative amid the impacts of COVID-19, clients can rest assured that there are steps that can be taken to improve the process, namely proper guidance on financing. Before purchasing or requesting a refinance, you can complete a formal mortgage pre-positioning review to make the process more seamless.
Take care and stay healthy!