improve your purchasing power

The three most important factors are your income, debts and down payment. Any one of these can greatly impact the amount of mortgage you qualify for.  Lenders are primarily concerned that housing expenses not exceed a certain percentage (28% - 32%) of the homeowner's gross monthly income.  Housing expenses include monthly mortgage principal, interest payments, property taxes, condo fees, utilities and homeowner’s insurance.

Below we have listed the most common obstacles to qualifying for a home and possible solutions to each.

Excessive Long-term Debt

• Consolidate your debts by taking out one loan and paying off your bills with the money.

• Pay off long-term debts by using some of your cash and making a lower downpayment.

• Pay off long-term debt by selling another asset and using the cash generated from that sale.
   

Inadequate Income

• Income from bonuses, overtime, or future raises might be considered in qualifying. If you've overlooked any income, be sure to tell your mortgage broker.

• Find a co-mortgagor who is willing to go on the loan with you to help you qualify.

• Buy a property that generates rental income.

• Make a higher downpayment.

• Consider a financing option that will allow you to stretch your purchasing power. Some of these options include insured loans (CMHC, GE Capital), adjustable rate mortgages, graduated payment mortgages, 40 year amortization mortgages.

• Non-taxable income may also be grossed-up, as though it was taxable.
   

Credit Problems

It is a good practice for you to request the details of your credit rating from the credit agencies periodically.  This will help you to understand your rating and ensure the credit agencies have the correct information.

To obtain a copy of your credit bureau report, you may contact the credit bureau agencies directly:

Equifax Canada
1-800-465-7166
consumer.relations@equifax.ca

Trans-Union Canada
1-877-713-3393 (Quebec only)
1-800-663-9980 (All other provinces)
marketing@tuc.ca

• Repair your credit file by contacting creditors and requesting that negative information be removed.

• Pay off outstanding judgments, liens and collections.

• Re-establish good credit
   

Lack of A Downpayment

• Get a gift from an immediate family member (may require gift letter).

• Ask the seller to carry and second mortgage.

• Sell or borrow against another asset.

• Borrow against or cash out your RRSP - but consider the tax implications.

• Ask the seller to contribute to closing costs, within the allowable limits.

• Consider financing options that offer lower downpayments and help with closing costs.

Another solution is to assume the existing mortgage on the house you are buying.  This is beneficial if for example, the existing mortgage has a lower interest rate or you have difficulties in qualifying.  You can also avoid some of the administrative costs of taking out a new loan.  In order to assume a mortgage, it must be transferable and you must be able to pay enough cash (or get a second mortgage or loan) to cover the difference between the purchase price and the outstanding debt.