People prepare for the unexpected all of the time—it's why we wear a seatbelt, pack an umbrella, and purchase insurance. We hope for the best but plan for the worst. Lenders plan in the same sense by using a mortgage stress test.

What Is a Mortgage Stress Test?

A mortgage stress test is a part of the lender's process in determining the risk of lending to you. It ensures borrowers can still make their payment at a higher rate than they actually pay. Why? While you may be able to afford the mortgage amount at the current interest rate, using a stress test allows lenders to determine whether a rate increase will make it impossible for you to make your payments. 

How It Affects You

Even if you have your 20% down payment, a good credit score, and a decent income, your lender still has to conduct a stress test, which is part of protecting you and them. 

Insured mortgages are required to qualify at:

And Conventional mortgages are qualified at the higher of:

These new guidelines can make it harder for homebuyers to be approved for the amount they want. For example, if you can afford a $1,500 mortgage payment with a rate of 2.5%, can you still afford that payment if it increases to $2,000? You can (and arguably should) conduct your own forms of stress tests—what would happen if you or your spouse lost their job? If you need more lending in the future, do you have enough room to be approved for another loan? What if you or your spouse have an income reduction? It may never happen, but preparing for a rate increase and other unplanned events, will give you and your lender peace of mind that you won't default on your mortgage payments in a worst-case scenario. 

As a mortgage broker, I want your mortgage experience to be positive and successful, now and in the future. If you're ready to start your mortgage journey, give me a call at (306) 220-0425, or visit my website and see how I can help you make your home buying dreams happen.