Are you considering buying a home in Mississauga, Toronto, or the Greater Toronto Area (GTA)? As the fall season approaches, you may be wondering if it’s the right time to make such a significant investment. Purchasing a home is a big decision, and timing can play a crucial role in ensuring you get the best deal. Let’s explore whether this fall is the right time to buy a home, discuss the steps to take to improve your chances of mortgage qualifying, and the options we have that can help.
This Fall – A Favorable Time for Homebuyers
In the Spring, when the Bank of Canada paused its interest rate hikes, the housing market accelerated and recovered a good portion of the losses sustained in 2022. Now with two subsequent rate hikes in June and July and increased fixed rates, some homebuyers have become nervous, not to mention priced out of the market with an increasingly tougher qualifying stress test. There will be fewer buyers actively searching for properties, which means less competition, giving you improved negotiating power and potentially better prices.
Additionally, sellers who have listed their homes during the summer months and have not yet sold could be more motivated to close the deal before the end of the year. This increased motivation can work in your favour, as sellers may be more willing to negotiate on price or other terms.
Surging Immigration and Lack of Housing Starts
If you needed any further motivation to buy a home this fall, consider the current state of housing in Canada. There is a persistent shortage of housing due to the failure of new home development to keep up with demand. In 2022, the Canada Mortgage and Housing Corporation (CMHC) noted that Canada needed to construct 3.5 million more homes by 2030 to achieve home affordability for Canadians. This is in addition to the nineteen million housing units that were already expected to be completed by 2030. However, according to CMHC data, housing starts are on a noticeable decline, and we may not even reach the original nineteen million new housing units by 2030.
Adding to the housing shortage, Canada’s immigration targets have increased, further straining the market. In 2023, Canada is targeting 465,000 new permanent residents, followed by 485,000 in 2024, and eventually aiming for 500,000 new arrivals each year starting in 2025. This influx of new residents adds to the already high demand for housing.
Statistics Canada reported that the Canadian population reached more than forty million as of June 16, 2023. This milestone came faster than expected, with 1.050 million people arriving in 2022, the first time our population grew by over one million people in a single year, with most being permanent and temporary immigrants.
While our population is now growing at a record-setting pace, our housing infrastructure is struggling to keep up. The resulting scarcity from our chronic lack of supply leads to a very competitive real estate market and sometimes bidding wars, creating frustration, and making it exceedingly difficult for first-time buyers to find affordable options.
Inflation is Tumbling
On July 18, annual inflation tumbled to 2.8%! We are finally getting closer to the Bank of Canada’s target of 2%. When the Bank feels it has achieved success in achieving this goal, rates will start to come down.
But don’t wait for rates to start falling. Once rates do start to come down, this could fuel the market, given pent-up demand, improved affordability, surging immigration, and a severe undersupply of housing supply.
Buyers are already aware of the market dynamics and are out house shopping. Phil Soper, CEO of Royal LePage, in this recent Financial Post article, noted that there are buyers who have accepted the reality of higher initial mortgage payments, believing that rates are either at or close to their peak and that carrying a mortgage will become more affordable before long.
Qualifying for a Mortgage: Key Steps to Take
Now that we’ve discussed the potential benefits of buying a home in the fall, let’s dive into how you can qualify for a mortgage and make the process smoother.
1. Check your credit score and polish your credit: Lenders use your credit score to determine your creditworthiness. Your score can affect your ability to get approved for a mortgage and the interest rate you receive. A higher credit score generally translates to lower interest rates and better terms, which can save you thousands of dollars over the life of your mortgage. You can ensure your credit score is in good shape by paying your bills on time, keeping your credit card balances low (below 35% of your limit), and correcting any errors that you may find on your credit report.
2. Pay off debt. Paying off debt before getting a mortgage is recommended because it can improve your debt-to-income ratio, free up cash flow, lower monthly payments, reduce financial stress, and improve your credit score. This can make it easier to qualify for a mortgage with favorable terms and put you in a stronger financial position overall.
3. Get pre-approved: A preapproval is important because it helps you determine your home much house you can afford, shows sellers that you are a serious buyer, gives you a rate hold for up to 120 days, and streamlines the mortgage application process. A pre-approval can save you time, prevent you from overreaching, and increase your chances of having your offer accepted.
4. Increase your downpayment: A larger down payment can lower your monthly mortgage payments, improve your ability to qualify with your lender, reduce the amount of interest you pay over the life of your mortgage, and potentially eliminate the need for mortgage default insurance if you have a 20% or larger downpayment. A common strategy for many new homebuyers is to get a gifted downpayment from parents or grandparents. You can also withdraw up to $35,000 from your RRSP under the first-time buyers’ plan.
5. Get a co-signor. A cosigner for your mortgage application can be beneficial if you have a low credit score, little credit history, or a high debt-to-income ratio. A cosigner with good credit and income can help strengthen your application by adding their financial resources to yours, which can increase the likelihood of approval and improve the terms of your mortgage.
6. Get advice early! It’s a good idea to have help, to understand your options and identify potential roadblocks before you start the application process. He can review your financial situation, credit history, and other factors that could impact your ability to get approved for a mortgage. By seeking advice early, you can avoid surprises and make informed decisions that can save you time, money, and stress in the long run.
Our Mortgage Solutions to Help with Qualifying
We have mortgage options that are specifically designed to help you qualify at today’s rates and help you manage your monthly budget.
Extend Your Amortization
The benefit of extending your amortization is lower monthly payments, which can make a dramatic difference if your budget is tight. You can always shorten your amortization once rates begin to drop, and you have more breathing room.
To get a 30-year amortization mortgage, you need a 20% downpayment, which is another reason to try and achieve a larger amount down. Some non-prime lenders offer 40-year amortizations, but they do come with a rate premium.
This mortgage may sound odd; why take a new mortgage for only 6 months? The benefit of this product is that the rate is significantly lower and is essentially a promotional rate to help you qualify and pass the stress test. Then at 6 months, you renew into the product that looks to be the best at that time.
Non-Stress Tested Mortgages
Most non-prime lenders and credit unions are not required to use the stress test for mortgage qualifying because they aren’t federally regulated. These lenders will qualify you at your contract rate, and not your contract rate plus 2%. This can help you qualify for the amount you want or allow you to purchase more house.
While this fall looks to be an opportune time to buy a home in Mississauga, Toronto, and the GTA, it’s essential to consider whether you are financially ready or not. Remember that the right time to buy a home is determined by your financial readiness, market conditions, and personal goals.
If you’re well-prepared and have done your due diligence, this Fall can offer unique advantages for homebuyers like reduced competition and motivated sellers.