The immediate shutdown of non-essential services in Canada to control the spread of COVID-19 has resulted in severe economic consequences. In April alone we saw the loss of nearly 2 million jobs across the country to where the unemployment rate doubled to 14%.
By now, provinces have implemented at least phase one of the comprehensive plan to reopen their economies. However, with new social distancing measures in place, the economy may take a bit longer to recover than anticipated. With large events, schools and sporting events cancelled and flights and restaurants still not open for business, it may be a while before we see our economy stabilize.
So, what does this mean for homebuyers? If you have lost your employment due to the COVID-19 pandemic, can you still get approved for a mortgage? Spring is typically the busiest, most desirable time for home buyers and sellers. If you are wondering when, if and how you can move forward with your homebuying plans we have some advice for you.
We sat down with the owner of Everything Mortgages and the Greater Toronto Area BDM, Krista Valadao from Home Trust Company to get some insight into what has changed in the alternative lending landscape post-COVID, and it means for you.
Remember, these are just general scenarios. If you want more accurate information regarding your unique situation and a clearer picture of the current market, we are just a click or a call away. Contact us for professional loan guidance.
Can I get a mortgage with zero income?
Yes, you can! However, you may need to jointly apply with someone who can prove their income. For example, this is a common situation among couples where only one partner is employed. If one of you can show enough steady income, there’s good chance of getting approved.
Like any type of loan, successful mortgage approval depends on the applicant’s income and the property itself. The lender wants to know whether the transaction makes sense for you and them. It is not about how many earners are on the application but rather, how much the applicant(s) earn total and whether the loan amount is justified.
What if I have been temporarily laid off due to COVID-19, but guaranteed a job and currently receiving the CERB, can I still get a mortgage?
Yes, you are still eligible and can qualify for a mortgage. The benefit of working with a mortgage broker is that you have access to a network of alternative lenders who look at your entire situation. Alternative lenders consider many factors when qualifying a home loan applicant. Every application is looked at on a case-by-case basis so there is no “cookie cutter” solution. They look at your situation pre- and post-COVID whereas a traditional bank will only look at your status right now.
Some considerations include:
- Do you own an existing home? If you do, for how long? What is the history of that mortgage?
- What is your employment history like? How replaceable is your income? For example, an income of $50,000 is far more replaceable than an income of $250,000. How likely is it to find a new position if the applicant does not return to work?
- Do you have any assets such as investments or savings funds that you could fall back on if the income disruption were to continue?
- How established is the business that you are currently working for? Is it a small business or large corporation? How long have you been employed there? Are you a part of a union where you are guaranteed employment? Or are you a casual worker?
Traditional banks have strict lending guidelines where if you don’t have employment at the time of applying, they will simply not lend. The beauty of working with alternatives lenders is that there are many ways that we, as your mortgage broker can qualify you.
Lenders are still approving clients that have lost their jobs so it’s a conversation worth having. Whether it be through assets or having enough equity in your home, alternative lenders are open to working with these types of deals and situations. Your mortgage broker knows how to package and present your story for optimal success and work with the lender for higher chance of approval.
Self-employed borrowers – can they still get a mortgage if they are slow right now but can prove business was good pre-COVID?
In many cases, income has been interrupted or reduced due to COVID-19. A lot of self-employed individuals and small business owners have been impacted. Especially, those in the restaurant, hospitality, sales, service, travel and tourism industries.
So yes, your income may be reduced. But there is still hope yet. Apart from your income, alternative lenders will also look at your total expenses. Let’s say you own a restaurant and your business income has been reduced by 50% or more. Your business expenses may also be reduced by a similar amount. An alternative lender will take that into consideration.
In another case, if your business is temporarily shut down but you have been in operation for 20+ years, it’s safe to say that you have a strong chance of bouncing back once the situation normalizes.
Many business owners have become very creative and resilient by adapting to the current situation. Your mortgage broker will take the time to understand your entire story and use that to reason with a lender on your behalf, working with you not against you.
What if I lost my job after I applied for a mortgage?
When you apply for a home loan, there’s an income verification process. It’s a common practice to verify the applicant’s income when applying and once more before closing. So, if you have lost your job or have reduced income due to COVID-19, then you’ll want to report this change to the lender immediately to avoid any unexpected surprises come closing.
If you suddenly find yourself without income because of mandatory closures and social distancing measures, but you are expecting to return to work, then there may be options available to you. Sometimes a letter from your employer stating the circumstances and confirming your return may be enough to continue with the application. But it is unique to everyone.
The market is changing quite a bit right now and alternative lenders understand this so getting a deal is still possible. Don’t let the current situation get you down or inhibit you from moving forward with your homebuying plans.
If your situation has dramatically changed, then use this time to educate yourself on the homebuying process and improving your credit. Or if your income is steady but you’re not ready to buy just yet, now would be the perfect time to get pre-approved for a mortgage so you’re ready to hit the ground running when the market does stabilize a little bit more.
Where is market is headed? What is the best move is for homebuyers right now?
We believe there might be a correction in the home prices given the severity of the job losses and income reductions throughout the country. CMHC reported they anticipate Canadian home prices to drop anywhere from 10%-18% in the coming months. The housing market will experience a historic recession throughout 2020 with housing starts, sales and prices expected to start recovering by mid-2021 as the pandemic recedes. We see the Canadian economy showing great resiliency and bouncing back from the current situation.
As a homeowner, now would the opportunity to refinance your mortgage and perhaps focus on renovations so when the market does bounce back, you’re ready to buy a property or sell yours at a higher value. Subscribe to our blog posts and browse our past articles for useful home purchase and refi advice.
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