If you’ve been considering buying a condo but don’t have the best credit, you’re fresh out of luck. CMHC, the Canada Mortgage and Housing Corporation, has moved again to keep the market stable and quash speculation by limiting funds available to banks to fund first time buyers and those with bad credit.
The move has been both demonized and lauded by economists, each side quick to point out what they do and don’t like about the plan. Either way, with funds held tightly in hand it’s not the best time to be a first time homebuyer or one with spotty credit history.
Shifting the Risk
Back in 2008, in the U.S. at least, the risk of bad loans and bad mortgages was shifted from lenders to the government. It created a massive transference of wealth – one that they’re only now recovering from. At the heart of the problem was Fanny Mae and Freddy Mac, the American version of the CMHC.
CMHC headed off similar problems here by limiting the amount of money given to banks, a.k.a. the risk assumed by the government, with the expectation that around 1 in 12 homebuyers would be affected by the lack of funds. While many Canadians had great credit a few years ago, some need a little more help a few years later.
When Payments Come Due
But what if you had fantastic credit a few years ago when you put your deposit down? What if, through no fault of your own, you just can’t qualify for the same financing you did in 2011 or 2012?
When those down payments come due, there can be little you can do as a buyer, especially if your situation has changed. No help from the government, no help from your lender, it can all lead to you ending up in court where you could be on the hook for hundreds of thousands of dollars.
Buying a home is never easy, but it’s probably been easier than this.
Pre-Qualified Means Nothing
If you’ve been told by your lender that you’re “pre-qualified” for a mortgage, that just means you can walk in the door and fill out an application like any other customer. It basically means you’re a warm body that may or may not have the money to pay whatever’s lent to you back.
And being a warm body is a bad thing, especially with lenders across Canada trying to avoid an American-style housing bubble. There are no NINJA loans in Canada (No Income, No Job or Assets), and if you want to be able to qualify for a mortgage you’re going to need to have spotless credit,
Securing Financing is the Hard Part
If you are bent on buying a home, stopping in with your lender should be the first thing you do. Find out how much you’re approve for, how much down payment you can afford and how much gift money you can get from family and friends (if you’re a newly-wed couple for instance).
But if you can’t secure financing on your own, you can always build up your nest egg and work on your credit. It may take a little while longer to reach your goal, but you’ll get there!
The Goodale Miller Team, based in Oakville, Ontario, is the #1 team in Canada for Century 21 11 years running. To learn more visit http://www.goodalemillerteam.com