There has been much attention in the media recently regarding a potential housing bubble. In the past few months, we have seen properties staying on the market longer and prices beginning to drop.
What does that mean for the potential home buyer? Several factors may make it tougher for some people to qualify for a mortgage. Lenders have tightened their guidelines in recent months and will continue to do so. Appraisals will be lower and evaluation of properties will become much more conservative.
If you are looking to refinance in the near future, it may be a good idea to get pre-approval before there is a correction in the real estate market.
Here’s some e examples of where it can matter:
- A borrower who wants a line of credit – If you have 20 – 25% equity in your property, then you will want to get approval as soon as possible. A small drop in the value of your home could change your ‘loan to value’ above the 80% minimum requirement. ‘Loan to value’ is the amount of your outstanding mortgage divided by the property’s appraised value.
- A borrower who wants to refinance for a 90% loan to value maximum – The new lending guidelines dictate a maximum loan to value of 90% for refinancing. As an example, if your loan to value is 83%, just a small drop in housing prices will reduce your equity.
- A borrower who wants to refinance up to an 80% loan to value maximum – 80% loan to value is the maximum amount to qualify for a conventional loan i.e. no high ratio insurance. If your loan to value is 75% or more, even a small drop in housing prices could put your loan to value over 80%, incurring high ratio insurance premiums.
What should you do? If you are considering refinancing your mortgage then give me a call. Given current market conditions, sooner will be better than later!
– Excerpts taken from Canadian Mortgage Trends
