The Landscape of Lending is Changing
A lot has changed in the real estate and financial marketplace over the past few years. Let us help you understand how these changes may impact your efforts to buy or sell a home in 2016.
The bank loan landscape has been through some severe changes ever since the 2008 financial crisis. And although loan demand is increasing, big banks were not affected here in Canada as badly as the US counter parts after the financial crisis. The regulators are in conservation mode and are putting regulations in place to avoid what happened in the US back in 2008. Key to note is that most large institutional banks (Schedule A) are going to be significantly impacted by the new regulatory hurdles in determining creditworthiness for loans.
So, just how has this impacted the process of securing a mortgage?
Just a short while ago, lenders would look at your whole financial picture. For example, if you lacked a steady income, but had large assets — you would most likely secure a mortgage. Another example, if you had a large down payment or 35-50%, but were unemployed or underemployed — the lender could justify the risk because they knew you won’t risk loosing your large down payment. One more example, if you had great income and bruised credit, but good assets — mortgage lenders would have given you a loan.
Looking at 2016, there are very strict guidelines for determining creditworthiness for loans.
Unfortunately, this means that if you don’t fit into the strict guidelines, Schedule A Banks will not lend you money for your new home.
In response to the lending limitations of traditional banks, alternative lenders are stepping up.
But wait! What does a typical alternative finance company look like? Alternate finance companies can take the form of brokers, financing entities, Credit Unions or servicing organizations. Key to note is that they don’t have the same level of regulatory oversight as financial institutions and can act more nimbly when it comes to operations and underwriting. They tend to use proprietary systems to make credit underwriting decisions and may sale or securitize loans shortly after origination. For example, a Schedule B Lender will accept income verification via 3rd party confirmation ie 12 month bank statements invoices or copy of a contract. And Private Mortgages are available to those without provable or justifiable income.
Now you have to look at how much you really want to pay to own a home. At the moment, we see on average:
- A Lender rates 2.69%
- B Lender rates 4.25%
- Private rates 6-10%
So seek a mortgage professional and see where you fit in before you decide to buy your home.