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Stress testing is a risk management tool that tests the ability of borrowers to withstand an interest rate hike. When the Federal Government implemented a stress test in 2017, people started searching for alternative methods to secure a mortgage and different ways to enter the housing market.

For a mortgage application to be approved, the applicant must be able to carry a loan with an interest rate around 5%, even though the actual rate will be lower. This will reportedly block 50,000 Canadians from homeownership and has forced many to become more creative and prudent.

Alternative Lenders

In their pursuit of homeownership, people have been ignoring banks in favour of alternative lenders whose approval process is less stringent and they are not as tied to the Bank of Canada. There’s a lot of value to non-traditional lenders.

People must cast a wider net as they try to secure a loan. The strategy is to meet with different lenders to determine who has the most favourable terms and offers you the best chance at approval. They can offer better rates, and in some instances, are more open to negotiating terms.

Other Options

Mortgage stress testing isn’t going away, in fact, the Government and the Bank of Canada might implement more regulations to stabilize the market and prevent borrowers from defaulting on loans. To counteract this, borrowers can take certain measures to make their mortgage applications more attractive.

A higher down payment and paying down your debt can help your application withstand a stress test. Additional assets can also help. If you are looking to get a mortgage for an investment property, then partner with an experienced person who has good credit and can increase the down payment. Granted, some applications with big down payments will be rejected but it can still make an application more appealing in the eyes of lenders.

There are no tricks to beating the stress test or getting approved for a mortgage in 2018. For those looking to sell their home or enter the market, you need to review your situation with a mortgage specialist and determine if now is the right time. The other option is to simply wait a bit so that you can decrease your debt, increase your salary and assets and present a better application.

Making the leap from lifelong renter to homeowner is exciting but it can also be stressful and time-consuming.  Homeownership comes with a ton of responsibility but it results in finally having a place to call your own. A place where you can settle, make all the choices and plant roots.

Here are some tips to help make the transition from renter to owner as smooth as possible.

Create a Detailed Budget

Entering homeownership for the first time is expensive and a big financial change for most. You need to know where your money is going every month. Create a detailed budget where you outline every monthly cost and be sure to leave some room for those pesky costs that pop up every month.

Your budget will guide most of your monthly spending. The more detail you include, the less chance you have of being surprised. If you come under budget some months you can consider making a larger mortgage payment, which will go towards the principal.

Learn to be Handy

Renting can be nice and breezy. When your faucet breaks, you call your landlord and they call the plumber. When you have an electrical problem, you call your landlord and they call the electrician.

Owning a home means being responsible for every broken appliance, leaky faucet and every part of a home that requires maintenance. Learning to be handy and being able to make small repairs can save an owner a lot of money and get your home running at optimal capacity quicker.

There are a ton of DIY classes people can take to improve their skills and knowledge. Home Depot and community centres tend to offer these classes in the GTA.

Do not Overlook…

An important tip for homeowners is to stay organized. If you are upgrading the size of your home, you will have more space so use it wisely. This doesn’t mean acquiring more stuff, but instead, make sure you keep your storage spaces organized and don’t let your garage devolve into a room full of tools and boxes of old clothes.

There might not be a bigger lifestyle change than the one that comes with becoming a homeowner for the first time. Go into the situation with a plan and do your best to execute that plan every month to ensure the transition works and to minimize stress.

Life changes and your personal finances tend to change with it. So much of your life is tied to your finances so when either a positive or negative shift occurs you need to re-evaluate your entire budget.

For borrowers who experience a change in their financial situation—new job, promotion, unemployed, come into money—they need to understand how they can adjust their home equity loans and mortgages or what strategies they can adopt to ensure their loan terms match their financial situation.

Redo your Budget

Once a change in your personal finances is a distinct possibility, sit down with your budget and review each expense against your new monthly income. This will give you an idea as to whether you need to pay less towards your loans per month or if you can pay more towards the principal amount of the loan.

Notify your Lenders

As soon as you know the details of your new financial situation, make an appointment to speak with your lender to discuss options and determine if you need to negotiate different terms. Depending on the lender (traditional or non-traditional) you could have options as a borrower. Nothing can change unless you initiate the conversation with your lender. In most cases, they are happy to work with you to ensure you can pay your loan or loans.

Your Mortgage and Loans

If you find yourself with more disposable income per month, then you could endeavor to pay off your loan faster. If you lose your job or find yourself in a situation where you need to support a dependent or pay for post-secondary education, then you might be able to negotiate new loan terms which will improve your cash flow. This applies for mortgages, home equity loans or a home equity line of credit. The goal should always be to pay the most towards principal but every situation is unique.

Lenders want you to be able to pay your loans so most will work with you to determine a course of action if your financial situation changes.

A loan application is thorough and requires a lot of supporting documentation. It can be something of financial audit meaning applicants need to have their numbers in order if they want to get approved.

The information that will be required depends on the type of loan, and in some cases varies based on the applicant’s situation. For instance, a self-employed applicant requires more proof of employment and a first-time homebuyer could be asked to submit additional information.

Let’s review what information is generally required for a loan application.

Personal Information

Lenders need to know who they are considering so applicants need to provide a lot of personal information. This can include but is not limited to:

• Legal name(s)
• Date of birth
• Contact information
• Current address
• Current and past employers
• SIN

If you require a co-signer, then the borrower will need the same information for them as part of your application.

Credit History

You will need to a provide credit history to lenders, including a credit score. This will also help determine your interest rate and amortization options. This history provides insight into how you repay loans and your monthly debt load, both key factors to a lender.

It doesn’t matter if you’re applying for a mortgage, second mortgage, home equity line of credit, a car loan or a small business loan, you must submit your credit history to be scrutinized.

Appraisal or Inspection

For a loan to buy a property, you must pay for an appraisal or inspection. Once completed, the lender will ask you to submit the findings. The lender wants to make sure that you are paying for value and not overpaying for a declining or flawed asset. A lender is the one forking the bill for your property so they want to make sure its major systems are running and that it is a worthy investment.

Contact us today to learn more about the loan application process. We can walk you through everything you need to do and help you understand what your loan could look like with respect to interest rate and repayment.