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Mortgage Rules May Be Tightening- What Does This Mean For You?

General Nazarina DiSpirito 7 Jul

The Office of the Superintendent of Financial Institutions (OFSI), announced today its recommendations to all federally regulated institutions to promote “prudent underwriting of residential mortgage loans.”

OFSI made several recommendations that will put mortgage applicants under increased scrutiny, including suggestions that lenders more closely examine rental income and appraisals.  OFSI is also calling for an end to the idea that a considerable down payment (35% or more) or equity will translate into an automatic mortgage approval for potential borrowers.  OFSI expects lenders to emphasize income and character when assessing a potential borrower’s application.

What does this mean for you?

If you already have your mortgage approval, make sure you don’t lose it!You already worked so hard to provide all the right paperwork to get your approval, and it would be a shame if you had to not only redo everything, but provide additional paperwork and documentation if lenders amend their guidelines.

For new borrowers, you can prepare for stricter lending rules having your ducks in a row and ensuring your 5 C’s of Credit are in line: 

        Collateral – is there any issue with the property that a lender may not approve (e.g. presence of an oil tank, asbestos, etc.)?  

        Capital – where is your down payment coming from?  Do you have bank statements to show you have the funds?  

         Credit – have you been making your monthly debt payments on time?   Are there any issues on your credit that you need to take care of like an unpaid collection or credit card bill? 

         Capacity – ensure your income confirmation is current (job letter and paystub).   If you are self employed, ensure your income taxes are up to date and you can provide full copies of your tax returns and Notice of Assessments.  Avoid changing jobs if you are planning to apply for a new mortgage.  

         Character – your mortgage broker will tell a story to the lender about your application – does the story make sense?   Is it reasonable?

What does this mean for the Vancouver market?

If financial institutions actually make changes to their policies to reflect OFSI’s recommendations, it will be harder for borrowers to get mortgages, possibly reducing the number of home purchases in Vancouver.

Furthermore, these guidelines may only make it more difficult for new buyers to break into the Vancouver market, while buyers with more access to funds can continue to qualify for mortgages. However, it is important to note that it may take lenders months to implement policy changes, if they decide to adopt any recommendations at all. 

It is impossible to determine how these recommendations, if implemented by financial institutions, will impact the Vancouver market.  What is clear is that buyers will have to be even more prepared to provide documentation and to prove they have the character to have their mortgage approved.

What should you do?

OFSI’s recommendations that lenders increase scrutiny on income and character means that buyers should have their paperwork proving their income ready, and then call a mortgage broker.  A good mortgage broker knows how to tell your story in a way that demonstrates that you have all the Cs, making you more appealing to a lender.

Call me today to discuss how OFSI’s recommendations will impact your situation, and how I can help you get your mortgage approved in this increasingly challenging market. 

 

You can read OFSI’s press release and letter to financial institutions here: http://www.osfi-bsif.gc.ca/Eng/osfi-bsif/med/Pages/nr20160707.aspx