It is a dream for many to own a home of their own. However, given that consumer debt in Canada is at an all-time high, many people would be concerned that it is unachievable. But, when you reach out to the experts, they will give you a positive response that depending on your circumstances, yes it is possible to get a mortgage even when in debt.
Here’s what you need to look at the procedures involved in getting a mortgage and what a lender is looking for in order to comprehend what that means for you.
Pre-approval: First thing first, ascertain your maximum borrowing capacity, the interest rate, and the anticipated amount of your mortgage payments before you can begin viewing properties. We can help you get through this phase. In order for a lender to grant you a pre-approval for a mortgage, they must obtain comprehensive background information on you, including information about your income and liabilities.
Your ability to borrow money will be based on your salary. The lender gets a clear picture of your earnings from the following details:
- present pay stub
- a letter from your employer outlining your role, length of employment, and pay
- the most current tax return and the assessment notice that goes with it
- Conversely, your liabilities will tell the lender how much of your income is now going toward paying off debt. Even though you make a lot of money, it won’t do you much good if your other financial obligations outweigh it.
The lender will ask details such as:
- All debts that are secured, such as auto loans
- Any unsecured debt (such as student loans, credit cards, lines of credit, and payments for child or spousal support, among others)
Keeping Your Image Balanced
The known monthly payment amount for your secured loan will be deducted from the amount of your eligible mortgage. For example, if your monthly car payment is $500, the lender will deduct $500 from your available income when calculating your pre-approval. Typically, lenders will deduct 3% from the total amount owed on unsecured loans. Consequently, if you have $10,000 in unsecured debt, your eligible mortgage value will be further lowered by $300 per month.
Stress Test: As of January 1, 2018, applicants for new mortgages or refinances must pass a “stress test” in order to be eligible, according to the Office of the Superintendent of Financial Institutions. Lenders subject to federal regulation must guarantee that borrowers can afford mortgage payments at interest rates greater than those at which they were pre-approved. Even though it could sound harsh, this is an essential precaution to safeguard homeowners who might not be ready for an unforeseen increase in monthly costs.
Plainly said, this means you must now qualify at the higher of two percent over your pre-approval rate or the five-year benchmark rate set by the Bank of Canada.
One thing the mortgage pre approval lenders will always say is that if you do not now qualify, do not give up. There are ways to get your actions improved. Paying off debt is the most important thing you should do first. The experts suggest, and pretty understandable too, that you need to spend less and deposit more funds to grow your corpus. Another option to pay off your debt more quickly,is when you think of combining it into a manageable monthly payment.
No Cost Consultation
If you feel like you can’t pay off your mortgage on your own, you need to reach out to an expert like Yesha Patel. Contact us to find out how we can guide you through mortgage eligibility. It will also allow you more time to begin saving for a down payment, which will reduce your final payments and open up better opportunities in the future. Get your consultation scheduled and get in touch right now. Let’s work towards your aspirations of owning a property soon!
