Samantha Brookes, CEO and founder of Mortgages of Canada, says that even though B-20 has made securing mortgages more difficult, it’s by no means an insurmountable task.
One reason is that the days of bidding for single-family detached houses is a thing of the past in Toronto. While the condo market has taken off, largely because B-20 has reduced affordability, the single-family market has skewed in favour of buyers.
“I’ve been telling my clients to look for homes that have been sitting on the market for a while, because those people are willing to negotiate the price point because they need to get rid of the home,” said Brookes. “There’s more leverage if the house has been sitting for a while. Gone are the days of bidding wars.”
Paramount, however, is ensuring house hunters get preapproval first. Brookes says too many of her clients are approaching home buying the way they would have prior to January 1.
“Just make sure you get the new preapproval under the new stress test rules,” she said. “Use a bank or broker who’s doing an official preapproval. There’s a pre-qualifier and a preapproval, which is when you look at income documents up front, so submit them all up front during the preapproval process because a lot of people are missing that. They go to the bank and only get pre-qualified and they can’t actually afford the home because the bank didn’t look at all the income documents up front.”
Clients who enter into agreements to purchase a home they subsequently realize they cannot afford—because they didn’t get preapproved—are susceptible to lawsuits.
“You’re liable and you’ll lose your deposit. Even the realtor can get sued. If the seller sells to someone else for less you’ll have to pay for the difference,” she said. “You don’t walk into a grocery store without knowing how much money’s in your wallet, so don’t buy a half-million dollar house without knowing whether or not you can afford it.”
Brookes also suggests clients who don’t qualify for their dream home with a chartered bank can go to the alternative channel. While it will be more costly, stretching amortization can reduce the monthly payments.
“We can extend amortization up to 30 years, which drops the mortgage payment. Even if the interest payment is higher, if we consolidate all their debt into a refinance, you can save up to $2,000 a month.”