Your Post Pandemic Mortgage Strategy

I am sure most of you are familiar with the process of applying for a mortgage, but since the pandemic, there are a few things that have changed.  Lenders and insurers have really increased their scrutiny on your deals and it’s important that your mortgage application addresses how you were impacted by the pandemic.

Here are a few steps you need to consider before getting a mortgage post pandemic, or in the words of Hinshaw – “endemic.”

Check and understand your Credit Report

Check your credit report. This is a summary of your credit history and is maintained by Canada’s credit bureau reporting agencies, Equifax and Transunion. You have the option to view your credit report for free from each credit bureau. This will give you the best idea of what your credit might look like when you go to apply for a loan.

How agencies measure your credit score is by using numbers between 300 and 900. These numbers are a statement of your creditworthiness. Lenders will go by these numerical representations to determine whether to lend to you or not. Your credit score may also establish the type of interest rate that you will qualify for. Keep in mind that higher mortgage rates can increase the interest charges to your monthly mortgage payment, so checking your credit report before you apply is worthwhile. This is also a good way to check in and see if your credit needs improvement.

Checking your credit score is always a wise choice, especially now because of all of the payment deferrals offered during Covid. It’s very common that we’re seeing clients credit bureaus inaccurately reflect what is or isn’t in repayment or deferral. Check it out and connect you’re your creditors ahead of time. Or hey – call us! We can help! 

On the plus side, if you find out your credit score has dropped or is not up to par, you can work on rebuilding it straight away, by making your monthly payments and keeping your credit balance of its limit under 35%.

Organize your Debts

Lender use your debts to determine how much money you can borrow to purchase your home. They determine your mortgage-ability by a calculation called your Total Debt Service (TDS) ratio. If your TDS is high, this means you are at risk of taking on more debt than you can afford. If your employment was affected by Covid, and you have needed to accumulate debt to make ends meet, this will increase your TDS ratio. This, unfortunately, may limit how much money you can borrow from a lender. However, there is a way to resolve this issue. You will want to focus on paying off any debt you have collected over the course of the pandemic. Once you have paid off any debt, you can apply for a mortgage pre-approval knowing your TDS ratio will not affect you. Your mortgage broker will be able to help you evaluate the best ways to attack the debt. Some ideas are:

• Consolidation loans

• Strict monthly budgeting

• Zero interest credit cards (some available for 6 months)

• Cash back mortgages

Understand your employment and organize your Covid employment story

Reliable, full-time employment is important when it comes to applying for a mortgage, because you will be liable to make those monthly payments. The number one factor that a lender is considering when they evaluate your file, is your ability to pay your mortgage.

Throughout Canada, Covid has resulted in massive layoffs, and that makes reliable employment difficult. The lender wants to understand that you’re working in an industry that survived the pandemic. They want to understand if you were laid off, why you were laid and for how long. They want to understand what emergency benefits you took during this time. They want to make sure that your taxes are up to date. Here are a few things that could help you to present your income story to the lender in the most comprehensive way:

• Provide a 3 or 4 year employment history with T4’s to show the longevity of your career.

• Provide your last 3 years tax returns and notices of assessment

• Provide a quick summary of the months you were laid off, and why.

• Provide your CERB or other benefit summaries via T4A’s from CRA

• Provide your “return to work” letter

• Provide a quick summary of any loans you deferred, for how long they were deferred and when they went back to repayment.

Analyze your Budget

When applying for a mortgage, it is important to go over your budget and analyze how to keep it in check if you or your spouse (or both) lose your jobs. You want to make sure you can still make your monthly payments. Do you have a “fall back” plan? This is a few thousand dollars, in a bank account, that would allow you to buy yourself some time to find new employment. During the pandemic, many Canadians had to spend their emergency funds. More so than ever, lenders are wanting to understand what you would do if something were to happen to your employment.

Bottom Line

If you’re starting to think about purchasing a home this year, think about some of these points. Start collecting your documents and building out your pandemic employment story for you mortgage professional. The more information they have up front, the better they will be able to devise a plan that will help you meet your home ownership goals.