Mortgages in the COVID-19 World – New Criteria for Getting Approved
Aside from volatility in interest rates and the 2018 Stress Test rules, Canadians looking to invest in a home must deal with a changing lending market. The fallout of the virus and uncertain economic conditions have reached the real estate arena with both lenders and buyers treading warily. While the Stress Test had lowered mortgage affordability by 30% for some homeowners, the 2020 presents many more challenges that you must look into. Although many markets are reopening for business, and mortgages are available again, prepare for a new lending landscape unlike in the years before.
Loan Reviews and Processing Takes Longer
The new system of remote workers and staff members working from home has resulted in delays in reviewing and processing applications. Earlier, applicants could expect to hear back from the lender within a day or two. But, in the COVID-19 situation, lenders may not respond for several days and perhaps, weeks to make their decision.
Lenders Now Examine Two-Year Tax Returns
Whether you’re self-employed or a business owner, you may have to provide additional paperwork to prove that you have the financial integrity to take out a loan. Self-employed applicants must submit detailed financial information and tax returns for the past two years. If you’re running a business, statements for each month for 2020 must be attached to the application. Lenders need an overview of how your revenues have been affected because of lockdowns and the slowing economy. They’ll also focus on any support payments and government benefits you received having ramped up their due diligence efforts.
Status of Rent Payments from Tenants
Lenders may ask for detailed information about your tenants and if they’re making rent payments regularly. The kind of jobs they work is also under the scrutiny. If you intend to use the rental income to cover your property dues, lenders may want assurance that the tenants will pay up.
Home Equity Line of Credit May Not be Accepted
Lenders may not accept your application if you’re using your Home Equity Line of Credit to pay the down payment for investing in a rental property. The uncertain real estate landscape is not ideal for borrowing against the equity of your home.
Proof of Financial Stability
At the time of applying for the mortgage, you’ll submit information about additional savings and investments you have. Lenders would want ensure that once you’ve covered the down payment, closing costs, and any incidental overheads, you’ll have funds remaining to cover daily expenses.
Previously Deferred Mortgage Payments
To help people dealing with loss of income during the lockdown, several banks came up with a plan to allow borrowers to defer payments for six months. If you took advantage of this financial breathing room, it might affect your chances of getting a new mortgage. Each deferral was reported to credit bureaus. Although you may not see any setback on your credit score, you may have to provide robust reasons for not continuing to make payments on the respective due dates.
Purchasing a home or refinancing a current mortgage in the current COVID-19 situation has resulted in additional due diligence and lending criteria. Check around for the criteria you may have to fulfill before making the decision to invest in a home.