Provided by: Stefano Cologna, CFP, Mortgage Agent at Winestone Laval & Co.

In addition, similar to what was done for the “Latent & Patent Defects” blog, add my contact details:  For more information or to discuss other matters, contact Stefano Cologna at 416 781-3334.

Here are the top 5 reasons why people may not qualify for a mortgage with their bank.

#5 Lack of a Down Payment or Equity

With the end of cash-back mortgages offered by the banks, borrowers now have to come up with the down payment on their own. They can receive it as a gift from a family member – but no more cash-back from the lender used for down payments. Minimum down payment is 5% for the purchase of an owner-occupied home or 20% for a rental property. Minimum 20% equity in the home if it is a refinance. This will help you qualify for a mortgage.

#4 Insufficient Income

With the high price of homes in the GTA area, sometimes people simply don’t earn enough money to manage a mortgage payment, property taxes and other fees along with existing consumer debt and still have a life. For some home buyers, the only other option is to access more money for a down payment (gifted) or try to purchase a home with suite income or look at alternative lenders who accept room and board and other sources of income to help you qualify for a mortgage. In some instances, home buyers will look for someone else to go on title to add income to the application or to co-sign.

#3 New Mortgage Rules

Especially for those with less than 20% down payment, the new mortgage rules are adjusted to the debt servicing ratios and amortization for borrowers. The new rules for debt servicing apply to those with good credit scores and generally allow for a max of 39% (gross debt servicing – GDS) of gross monthly income to cover the mortgage payments, property taxes and 50% of the strata fee. In addition a max of generally 44% (total debt servicing – TDS) of gross monthly income is allowed to cover the same and other consumer debts such as loans, credit cards and lines of credit. The maximum amortization was also reduced from 30 years to 25 years – effectively tightening qualification for borrowers equivalent to a 1% interest rate hike.

#2 Credit Issues

Some people don’t realize if they are late on phone bills, credit card payments, their mortgage or loan payments, the lender will update the credit bureau agencies and the late payments will reflect on their credit report, lowering their credit score. Other items can also effect credit scores such as a collection (if you didn’t pay that parking ticket or fitness membership fee they can send to a collection agency) and those marks on your credit report make your score drop like a rock. Going over your credit card limit and applying for increased credit often, requires your credit report to be pulled by the bank, auto dealership and credit card companies which, in turn, will lower your score. Finally, consumer proposal and bankruptcy will greatly impact your score, which can stay on your report for up to 7 years if real estate was involved, as is often the case with bankruptcy.

#1 Too Much Debt

There are a growing number of consumers doing way too much consuming. Credit card debt is on the rise and over use of lines of credit are putting some people in a debt overload situation. Some pre-home-buyers go out and purchase that amazing new truck, along with a large monthly payment, which pushes their total debt servicing (TDS) ratio over the limit. Nice new truck – no home with a garage. Some home owners have so much consumer debt that they are unable to refinance their home to consolidate the mortgage and the credit card debt because the amount exceeds the maximum loan to value allowable (currently 80% of the value of the home) and if housing prices stabilize or drop in some areas – this makes it more difficult for home owners to qualify for that new mortgage and lower payments. Paying off your debt will help you qualify for a mortgage.

 

For more information or other mortgage matters, contact Stefano Cologna at 416 781-3334.

Blog by : Pauline Tonkin, DLC Innovations Mortgage Solutions, Coquitlam, B.C.