With mortgage interest rates at historical lows, it is a wonderful time for first time home buyers (link) to take the leap into the market. But there are some considerations and preparations to be made before starting the process.
A higher level of bank scrutiny has come into play now that the governance of CMHC has been shifted to the Office of the Superintendent of Financial Institutions (OSFI)
The banks have been jumping through hoops to meet stricter lending policies and so must potential mortgage borrowers. Mortgage rule changes that came into effect in July 2012 shortened the maximum allowable amortization on mortgages from 30-years down to 25-years. This has made it more difficult for buyers to meet debt-servicing requirements of lenders due to the higher monthly payments of the shorter repayments structure.
These two components of the lending landscape have put first time home buyers in the hot seat. Most young people are newer to both the employment game and the credit world and have had limited time to build up their own savings for the down payment.
Canadian Mortgage insurers (CMHC and Genworth) have minimum credit requirements of two years’ history on at least two credit accounts with a good repayment record. While potential borrowers may think it responsible not to overextend themselves with credit, they can be negatively affected by ‘under extending’. Paying on time on at least two accounts, such as a credit card or loan, demonstrates credit responsibility because these types of accounts report to the credit bureaus, a third party, and demonstrate a borrower’s credit responsibility.
Avoiding credit means there is no third party record of how credit is handled, leaving financial institutions lacking the tools to assess how a potential borrower will handle repayment of such a large loan. While it’s not advisable for young people to apply for credit everywhere, it is a good idea to establish two different credit accounts as soon as possible to create a strong credit history.
At Client First Mortgage Solutions we focus on you and your needs. Contact us to offer you different mortgage options.
Original Article: https://dominionlending.ca/news/KristinWoolard/obstacles-for-first-time-home-buyers/
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