New mortgage lending rules have made it tougher for borrowers to finance their real estate dreams. With tighter policies, the mortgage qualification criteria are stricter than ever, and this directly impacts the homebuyer market.
With a higher qualifying rate, an environment of increasing interest rates, a slowing home sale market, and more stringent lender policies, most homebuyers may find it even more difficult than it used to be to enter the housing market. However, with the changing mortgage market, you will notice both, pros as well as cons.
Pros of the evolving mortgage market.
1. By qualifying for mortgage loans at a higher rate, there is a buffer built into debt servicing. It means that the mortgage payment could increase and the overall debt load would still be affordable.
2. More stringent rules due diligence around down payment means there is more skin in the game and borrowers will have more of an incentive to keep their mortgage in good standing.
3. With the most recent changes, the impact on federally regulated financial institutions has trickled down to conventional borrowers in the form of increased rates but has increased the competition and kept prices low in the insured or insurable market.
Cons of the evolving mortgage market.
1. The stress test will require a higher qualifying rate.
2. There will be greater scrutiny of the down payment source.
3. Foreign sources of funds, whether income or down payment, will be examined minutely, which means it will make it harder for foreign or newcomers to get into a home.
4. As the new regulations seek to create consistency in the underwriting process, there is a lower propensity for exceptions and the elusive income of BFS or self-employed applicants may find itself outside of acceptable guidelines.
How can homebuyers take advantage of the shifting trends?
While there are many drawbacks mortgage-seekers are exposed to with the changing lending policies, there are ways to work around these things. Purchasing a home through mortgage finance can still be done with prudent planning. All you need to do is:
1. Build in a savings component into your budget and maximize down payment.
2. Live within your means (and income).
3. Leverage family gifted down payments to increase the purchase price (versus mortgaging to the maximum you can afford).
4. Seek out an industry professional to help you through the process as there is much to gain from their experience.
Our industry is experiencing changes that are beyond our ability to control, but I can help you sort through the confusion and guide you to products suitable for your needs and budget. While the rates vary compared to before, the process of obtaining and renewing real estate finance remains the same.
I’m Chris Jung, and have many years of financial industry experience. I specialize in a variety of financial solutions like mortgage refinances, renewals and reverse mortgages. I leverage my vast network of lenders and many years of experience to find you the right products for your homeownership priorities. I also work with my clients to develop collaborative solutions and help prepare them for the new borrowing criteria.