COVID-19 has affected nearly all aspects of daily life in Canada over the past 10 weeks. And the real estate industry has been far from immune to its caustic touch.
Whether you're looking at home sales, open houses, or new builds, everything has taken a hit or been forced to change during spring 2020. Many are beginning to find out that mortgage applications are no different.
Traditionally, meaning during non-pandemic times, "mortgage lenders were looking at potential clients according to three tenets: credit, income, and property," says Jerome Trail, owner and broker of record at The Mortgage Trail.
And while those three maxims remain the same throughout COVID-19, the way lenders are considering them has changed.
Before COVID, most lenders only needed to see a pay stub from as recently as 60 to 90 days previous to the closing date. Now, those same lenders are insisting on seeing a pay stub from within 14-days. Basically, you have to be able to prove that the pandemic hasn't affected your finances at all, or you'll face the likelihood of not being approved.
Relying on the Canadian Emergency Response Benefit (CERB), which millions of Canadians have applied for and received since it was introduced in early April, won't help an application either. Temporary social assistance isn't infusing any lenders with confidence.
However, the biggest repercussions Trail is seeing are in home valuations and the circumstances for the self-employed. "If you're self-employed, I'm now seeing lenders ask for three months of business bank account statements to prove that you have enough cash flow. But the reality for many self-employed people is that COVID-19 has definitely had an effect over the past 75 days, so they're having trouble. It's not that they don't have the money overall, it's that proving the past three months represent their livelihood isn't realistic."
Trail says he recently saw one of the big banks drop a mortgage approval after they asked to see the potential purchaser's last three-months of business statements. "So now this guy, who's self-employed and already taking a temporary financial hit, loses the house he thought he had too."
But perhaps most interesting, and worrisome is the discrepancy in valuation Trail has seen recently.
"We have now had first-hand experience with appraisers giving a lower valuation on a home than they gave less than three months ago." Trail says a homeowner who was looking to refinance in the Bloor-Danforth area was appraised for $1,540,000 approximately 75 days ago, but after the lender asked for 90-days worth of business accounts, the deal fell apart. When the file was moved to a new lender a new appraisal was delivered, this time for just $1,370,000.
That's a staggering 11% drop in just two and a half months.
So why the discrepancy? "Well, that’s literally the million-dollar question,” Trail says. "But, after nearly three months of living with the impact of COVID-19, we’re just starting to enter that little zone where the comps are starting to dry up. As such, a "true" comparison is hard to find to accurately represent the value of homes in the surrounding area.”
As the number of home sales in the GTA continues to remain down year-over-year, it's clear that getting a proper valuation of a home could remain a problem – whether for those buying or those looking to refinance their own home.
As for mortgage applications, know that if you're heading into one right now, you should make sure your credit is in order, be prepared to open up your accounts and prove that your bank account has COVID-19 immunity and that housing prices, in general, are in a state of flux unseen in recent years.