Why don't I qualify anymore?
Mortgage lending has changed drastically over the past 5
years. We often hear of people who qualified for their mortgages a few years
ago but no longer qualify for what they are looking for. Here is a recap of the
most significant changes we have had over the past years:
- Shortened maximum amortizations. Once upon a time, you could stretch the amortization on a mortgage out to 40 years. That slowly crept back to 35, 30 and now 25. On a $250,000 at 2.69% for a 5 year fixed, that is roughly a $250 a month increase in payment. That also means you will need to earn roughly $8600 more a year in order to qualify for that same mortgage with a shortened amortization
- Debt ratio cutback: debt ratios have been set at 35% for GDS and 42% for TDS for quite some time. Borrowers with higher credit scores used to be able to go as high as 44% for both however several years ago, they capped the GDS at 39%. With an income of $50k and no other debts included, that brings the maximum mortgage amount down by just over $44k!
- Secured lines of credit went from having a max of 80% loan to value to 65%. That means that on a $250k house, the line of credit portion can't exceed $162,500 instead of $200k. You can still combine a standard mortgage portion with that so this is probably the best change with the least impact
- Rental properties now require 20% down. Considering it wasn't too long ago when you only needed 10% down, that's an additional $25k on a $250k purchase
- Minimum down payment is now 5%. Gone are the days when we could do 100% financing - they now require borrowers to have a little more skin in the game
- Cash back can no longer be used for down payments. You need to have the cash in the bank although they do still allow for borrowed down payment from qualified applicants
- Heating costs. The standard amount has been $100 for heat however as of last year, most lenders use an amount based on the square footage of the home (usually $.50-$0.65). This means that larger homes are slightly harder to qualify for
- Revolving credit. On a line of credit or credit card where you can re-borrow the money, we now have to use 3% of the balance as the monthly payment instead of the actually interest only payment. On a $20,000 line of credit, that's $600 which is significantly higher than what the actual payment would be
In these changing times, it's more important than ever to speak with an independent Mortgage Broker who has access to multiple options and can help determine the best mortgage and lender to suit your needs.
www.christinebuemann.com
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