My friend Alex Grant, dipping his toes in the Clearwater River, Idaho.
You'll likely have heard a parent or older friend remark something like ' you could borrow a lot more back in the day ' .
Unfortunately that's fairly accurate - a changing economy and new rules mean that you could borrow a lot more previously.
For example, in 2013, if you had a $100,000 income, you could borrow a little under $800,000 with little trouble. Rates were low and lenders were quick to lend - they wanted to get the money into your hands quickly.
Today, ten years down the road, the lending landscape is much different. That same salary qualifies you for a little over $500,000 in borrowing.
There are a number of reasons for this I think, some obvious, some not so much.
1) Higher Interest Rates - the rate differential between then and now is notable, a full 3% difference in what you'll pay.
2) The Stress Test - mortgage qualification is for the most part, stress tested. The qualifying rate is a full 2% higher than what you are actually going to pay. It's designed as a 'what if' in case rates rise, as they did last year.
3) Government doesn't want you to borrow.
The last point requires some explanation - over the last eight years, government has virtually ignored the demand for housing, preferring a passive role in nurturing and encouraging the development of new housing. All three levels of government have left this to a free market rather than being active in development.
This has resulted in actual development falling very far behind what's needed to keep up with population growth. Now, the government is making it difficult to borrow in order to choke off demand, in the absence of supply.
The good news is that all levels of government are now focused on rolling out a federal housing strategy that may speed up the development process. Technological enhancements such as AI , are also being trailed on order to speed up permitting.
It's not an immediate solution but it may help to resolve future demand issues.
In the meantime, you can easily maximise your borrowing power by seeking the advice of a mortgage broker.
Call me anytime.
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