Federal mortgage policies help investors but are driving first-time buyers out of the opportunity to own a home: Here are two ways to get in to the market as a new buyer.

The federal government introduced the mortgage stress to make it harder to qualify for mortgage financing and ultimately reduce maximum mortgage limit by approximately 30 percent. The stress test also protects federally regulated financial institutions from "payment shock," a situation wherein borrowers are at an increased risk of default due to rising interest rates.


Besides making it harder to qualify, the stress test also gives investors or those with a larger downpayment an unfair advantage in the market. For example, a borrower with a down payment of 20 percent or more will find it easier to qualify for mortgage financing than someone with a smaller down payment since they can extend their amortization period to 30 years and lower their monthly payment. Furthermore, they can also qualify with credit unions that use the "contract rate" or apply with alternative lenders, also called "B" lenders. 


Thus, conventional borrowers have more financing options and, as a result, they continue to dominate the market, as is evidenced by the fact that purchases made by first-time buyers are decreasing while those made by investors (those who already own their principal residence) are exploding year after year. 


Regrettably, government policies meant to help the overall market by "cooling" it are driving more inflation and pushing a smaller segment of buyers out of the market altogether. Add to this: because having a smaller down payment makes mortgage lending riskier for banks, rules like the "stress test" will remain in place for the foreseeable future, likely continuing a cycle of unfairness between investors who get to own more property and first-time home buyers, who find it challenging or impossible. 


If you're a first-time homebuyer with a down payment that is less than 20 percent of the purchase price, you may wonder what you can do to "get in" to the market. Here are two suggestions: 

1. Use a co-signer or guarantor. Not many people love the idea of having their parents or another immediate family member like a sibling participate in their mortgage financing obligations. The good news is using a co-signer (on title) or guarantor (remaining off the title to your property) does not have to be a permanent solution. Once you can qualify without them, whether by earning more income or accessing a different lending program, you can complete an application to remove them from your mortgage commitment. Although this may be a strategy you will need to use to enter the market; it doesn't have to be forever.​
2. Buy with a friend or colleague. In light of today's rising real estate prices and the statistics that clearly show first-time buyers are being marginalized and driven out of opportunities to own property, it may make perfect sense to collaborate on homeownership with a friend. Speak to a lawyer about how ownership would be structured and speak to a mortgage professional about qualifying and the risk/benefit of owning with friends. 

Do you have a mortgage question? I would be more than happy to assist you with your questions or concerns. Please call or write today. 

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