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Can you get a home in today’s Canadian housing market? 

It’s a question that’s becoming increasingly common among prospective home buyers across the country, especially as home prices and mortgage rates have recently skyrocketed. Given what’s happened over the recent past, many are left wondering how 2023 will shape the Canadian housing market.

But as much as home prices and interest rates have soared over the past few years, rapid inflation has cooled markets across Canada. In fact, home prices dipped and sales activity slowed over 2022. And experts are forecasting a bottoming out of home prices at some point this year. This suggests that you may be able to qualify for a mortgage in today’s Canadian housing market.

Let’s go into more detail about the anticipated market trends and how Canadians can secure a mortgage to buy a home in 2023. 

Can You Get A Home In Today’s Canadian Housing Market?

One of the biggest hurdles that borrowers face when trying to get approved for a mortgage to buy a home is the mortgage stress test. As part of the mortgage approval process, applicants must prove that they’re capable of managing mortgage payments at an interest rate that is higher than their loan contract rate.

More specifically, mortgage applicants are required to show that they can qualify at either the minimum qualifying rate of 5.25%, or the contract rate plus 2%, whichever of the two is greater. 

Can You Get A Home If You Can’t Pass The Stress Test?

Fortunately, there are ways to apply for a mortgage in Canada without having to undergo a stress test. Alternative lenders are able to fund mortgages without having to adhere to bank regulators’ stress test requirements. That means mortgage applicants who apply for a home loan with an alternative lender may be able to avoid the stress test as part of the application process. 

However, not passing a mortgage stress test makes you a greater risk to lenders. Given this heightened financial risk that lenders assume when they extend a mortgage to you, the mortgage interest rate will likely be much higher than what you’d get with a mortgage from a traditional bank after having passed the stress test.

That said, working with the right alternative lender can help you get a mortgage with payments you can still afford.


How To Find An Lender You Can Qualify With?

Whether you’re looking for a traditional lender or a private lender, using a mortgage broker can help compare various lenders. For example, mortgage Maestro is a mortgage broker who can help you find the best rates for your financial situation. Through their partnerships with many lenders, they are able to offer customizable solutions based on your financial health.

Whether you have bad credit or a higher loan-to-value ratio, mortgage Maestro can help you buy a home in today’s Canadian housing market.

Can You Use Your Home Equity To Get A Home In Today’s Canadian Housing Market? 

If you already own a home, you can use the equity you’ve accumulated to buy another house. Here are a couple of ways to use your equity for a new home purchase.

  • Cash-Out Refinance – A refinance involves replacing your existing mortgage with a new one, ideally with a lower interest rate and better terms. The lower rate can help you save money on interest payments and lower your mortgage payments. With a cash-out refinance, you can access a lump sum of money from the equity portion of your home and put it towards a new home purchase. But keep in mind that this would increase your outstanding mortgage balance.
  • Home Equity Line of Credit (HELOC) – A home equity line of credit (HELOC) works like a regular credit line, except your home backs the loan.  You can access the funds from your HELOC to put towards the down payment of a new home purchase.

Tips On How To Get A Home In Today’s Canadian Housing Market

There are some programs available to eligible buyers that can help reduce the overall financial burden of buying a home.

Home Buyers’ Plan (HBP) 

If you’re a first-time homebuyer and have an RRSP account already set up with regular contributions, you can use the funds in the account to put toward your down payment. The Home Buyers’ Plan (HBP) allows eligible first-time buyers to withdraw up to $35,000. You have up to 15 years to pay back the withdrawn funds to your RRSP.

First-Time Home Buyer Incentive 

The First-Time Home Buyer Incentive is available to qualified first-time homebuyers to help reduce their mortgage payments. The program offers 5% or 10% of the purchase price of a newly constructed home, or 5% of the price of a resale home. These funds can be put toward the down payment to help lower your carrying costs and make homeownership more affordable.

What Do You Need To Get A Home In Today’s Canadian Housing Market?

Lenders will look at several aspects of prospective homebuyers before approving a mortgage application. Here are some of the key requirements for getting approved for a mortgage to buy a home in today’s housing market.    

Stress Test 

As mentioned, if you’re applying for a home loan with a traditional lender, like a big bank, you’ll need to pass a mortgage stress test. This test is meant to ensure that you have enough money to cover your mortgage payments at the Bank of Canada’s 5-year lending rate (currently 5.25%) or at the lender’s contract rate plus 2%, whichever is greater.

However, you may be able to avoid this test by applying for a mortgage with an alternative lender, as mentioned earlier.

TDS Ratio

This number represents the share of your monthly income that is used to pay for all your monthly costs, including housing costs and all other debts such as credit card and personal loan debt. This helps a lender verify whether you have enough income left over after paying all your monthly bills to comfortably cover mortgage payments.

Generally speaking, lenders prefer to work with borrowers with a TDS of no more than 44%. If it’s any higher than that, you present a higher risk to the lender and may be turned down for a mortgage.

Credit Score

Your credit score is one of the most important factors when it comes to getting approved for a mortgage, or any other type of loan. Conventional lenders require that borrowers have good to excellent credit to secure a home loan. Generally speaking, you’ll need a credit score of at least 680 to get a mortgage with a traditional lender. 

If your score is under this threshold, you might need to apply for a home loan with a subprime lender. These lenders work with bad credit borrowers, though the interest rates are higher compared to mortgages offered by prime lenders to borrowers with good credit. Before applying with a lender be sure to check your credit score to see where you stand.

Overview Of Today’s Canadian Housing Market

Canadians looking to get into their local real estate market will want to know what 2023 will look like and if this year would be a good time to buy a home. The following are some trends that we can expect to see throughout the year:

Housing Affordability Will Still Be An Issue In 2023

High mortgage rates and affordability issues will continue to be hurdles for homebuyers in 2023. This may help slow market activity and price gains. Many would-be buyers have sat on the sidelines for a while and may continue to do so for some time. For more buyers to make their way into the market, further price drops will need to happen. 

Will Home Prices Fall In Canada?  

According to a recent report from TD Economics, average home prices in Canada will reach their bottom in early 2023. The most pronounced bottoming out is expected to happen in Ontario, BC, and most of the Atlantic provinces. However, by 2024 nationwide home prices are expected to rise again.

Alternative Lenders Will See Continued Popularity

There are plenty of reasons why many homebuyers seek out mortgages with alternative lenders than conventional banks. For starters, borrowers can get approved with lower credit scores than what banks typically require. Alternative lenders can also offer mortgages without the need for applicants to undergo the mortgage stress test.

A report by the CMHC, suggests that given the lower barrier to entry for mortgages, alternative lenders are expected to become more sought-after, particularly for those who find it difficult to get a loan from a traditional bank due to more stringent lending rules.

Fixed-Rate Mortgages Continue To Be In-Demand

According to data from the Canada Mortgage and Housing Corporation, over half of Canadian homeowners chose fixed-rate mortgages in 2022, despite increasingly choosing variable rates in the past. That said, borrowers who have opted for fixed-rate home loans have committed to shorter terms of less than 5 years, compared to longer terms of 5 years or more.

Final Thoughts On The Canadian Housing Market

The spike in mortgage rates and home prices has certainly made it a challenge to break into the housing market, but you still need to meet the same criteria to get approved for a mortgage. A solid income, strong credit profile, and manageable debt will help you secure a mortgage to buy a home. If your credit is lagging, you can work with an alternative lender to help boost your odds of mortgage approval. Otherwise, take some time to improve your credit score and other aspects of your financial life before applying for a home loan.

Canadian Housing Market FAQs

Should you wait to buy a home?

There’s no right or wrong answer to this question, as it depends on your specific situation, as well as the current market. Interest rates continue to increase, which might put prospective buyers on the sidelines. But rising rates might also entice buyers to get into the market now before rates increase any further.   As mentioned earlier, home prices are expected to bottom out early this year, which means now may be a good time to buy before home prices pick up in the near future. The market has cooled, so demand is not as high as it once was. Again, this may be another sign that today may be a great time to get into the market.

Can the FHSA help me get a mortgage in today’s housing market?

At some point this year, the Canadian government will launch the First Home Savings Account (FHSA), a tax-free savings and investment account. You’ll be able to make a lifetime contribution of up to $40,000 on a tax-free basis. You can then use his money to put toward the purchase of your first home.

Why are more Canadians choosing fixed-terms?

A fixed-rate mortgage offers protection from sudden increases in mortgage payments due to rising rates. The predictable payments make budgeting easy. Given how rates have been on the rise as of late, many homeowners may choose to lock in at a rate on a fixed-rate mortgage. This helps them avoid any unpleasant surprises in the near future.
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