Effective January 1st, 2018, homebuyers putting a 20% or more downpayment on a house now have to qualify at a “stress test” rate of 4.99% or their contract rate +2%. This stress test ensures that the borrower’s housing expenses compared to their income remain below a certain threshold in the event that rates go up. The Office of the Superintendent of Financial Institutions has outlined this change in their official guidelines. While the federal documents may be challenging to decipher, here’s how these rules may affect you:
I’m planning to buy a house with a downpayment of 20% or more:
The new rules may restrict your potential homes in terms of cost. Some homebuyers may choose to wait and save up for a larger down payment. Regardless of whether you choose to save up or look now, it is more important than ever to be pre-approved.
I’m renewing my mortgage:
Luckily, lenders aren’t required to apply the stress test when renewing an existing mortgage. The only restriction is that it may limit your ability to shop around for a better rate if you fail the stress test.
I’m refinancing my mortgage:
If you already have a mortgage refinance commitment in place in 2017, you will have 120 days to follow suit without needing to adhere to the new rules. If you are planning on refinancing this year, you will have to qualify according to the current stress-state rates, not your existing contractual mortgage rate.
I’ve already signed a purchase agreement or have been pre-approved for a mortgage in 2017:
If you have already signed a purchase agreement back in 2017, lenders aren’t required to apply the stress test even if you apply for a mortgage in the new year. In a similar way to refinancing, clients that have been pre-approved for a mortgage in 2017 will have 120 days to buy a new home without undergoing the stress test.
Here at Source Mortgage, we understand that these rules will affect real changes on our clients. That’s why it’s so important to stay informed! If you are concerned about how these rules may impact your ability to buy or sell, we are here to answer any questions you may have!