Pre-Approvals After April 19

Here’s a question: 

Suppose you get pre-approved before April 19 and you’re putting down less than 20%.  What happens if you don’t sign a purchase agreement until, on or after, April 19? Which qualifying rate will the lender use to determine if you can afford the mortgage?

We spoke with CMHC and they were helpful in providing this clarification:

Pre-approval does not count as a financing agreement as it doesn’t represent a binding agreement to advance funds.  So even if the borrower gets pre-approved before April 19, given that he/she would sign the purchase agreement after the cut-off date, the new rules would apply. 

In practice, if you’re well-qualified, you won’t be impacted by any of this.

If, however, you are getting pre-approved and your debt ratios are near the limits, it could mean that:

a)  The higher qualifying rate after April 19 might reduce the mortgage amount you’ll qualify for (assuming you haven’t signed a purchase agreement before then); and,

b)  You might potentially qualify for only a 5-year fixed term. (see: The 5-year Funnel)

Keep in mind that the government’s new posted qualifying rate does not apply if you are putting down 20% or more.  The one exception is, if you use a lender that chooses to apply the new rules regardless of your loan-to-value.

As always, the best bet is to speak to a mortgage planner for details specific to your situation.