As a busy Mortgage Broker for the last 16 years and 20 years before that as a banker, the first thought that comes to mind as I write this blog is “one thing is not like the other”. Ever since all of the mortgage changes came into effect over the last few years, I have seen a significant number of mortgage applications declined by one lender only to be approved by another one due to one small difference in each of their qualifying guidelines.
With the recent announcement of the latest mortgage rule change regarding HELOC’s, (Home Equity Lines Of Credit), I think it is timely to discuss all of the differences I have seen:
- Let’s start with the latest rule change to come on how HELOC’s (home owner lines of credit) are calculated when qualifying for a new mortgage. If you have a limit of $250,000 and zero owing, some lenders will calculate as if you have borrowed the full $250,000!!!
- The majority of lenders will include child/spousal support payments under debts along with your car payment and minimum payment for credit card balances owing. However, there are a couple of lenders who will deduct those payments directly from your income which very much benefits the borrower
- The inclusion of rental income in meeting debt servicing qualifications is all over the map! For instance, there is a different calculation used for the rental property you are financing versus the rental properties you already own. Or if you have owned a rental property for more than a year or just recently purchased, there are different calculations used for each. And if you own just one rental property and not two or more, the calculations used can be quite different between the various lenders
- I recently worked on one file where the borrowers couldn’t quite qualify for their dream home because their credit scores weren’t high enough. I simply took them through a different lender who allows the regular debt serving ratios regardless of the credit scores and they were approved!
- Can’t write this type of blog without including self-employed income. That source of income is where I have seen the most differences on how lenders will qualify the borrowers. Some lenders will allow you to “gross up” the personal declared income on your tax return by 15% if you are a proprietor but not incorporated. Other lenders will allow a gross up of income even if the borrower is incorporated. Some lenders will allow “add backs” of non-cash expenses such as home use of office or capital cost allowance. Other lenders have special programs in place for self-employed individuals who choose to take minimal income out personally to save on income taxes which doesn’t meet the required debt servicing ratios.
- The amount of Child Tax Credit some families receive each month is quite substantial and it can make a difference as to whether you can qualify in the price range you want to be in or not. There are only a handful of lenders who will recognize this income source and even that rule changes between those lenders. A couple of lenders will allow it if the kids are 15 years old or younger while another one has a maximum age of 13 years old.
- A down payment is difficult for many to accumulate while paying rent and all other household expenses. There are still a number of lenders who will allow you to borrow the down payment as a loan or from a line of credit. Though, in addition to qualifying for all of the new housing costs such as the mortgage, the borrower will have to meet debt servicing requirements with that new down payment loan payment included
If you are having problems qualifying with your current lender, ask them for a detailed explanation as to why you don’t meet that lenders approval requirements. If your financial profile includes any of the above scenarios, contact an experienced Mortgage Broker who knows ALL the different rules and guidelines of about 50 different lenders and see if you fit with any of those. Most often, if you know what your credit looks like ahead of time along with your credit score, an experienced broker can just run the numbers for you without having to order another credit report.
Contact the MortgageGirl on her website: Mortgagegirl.ca . You can call her at 780-433-8412 or email: firstname.lastname@example.org You can also follow her on Facebook (MortgageGirl.ca), Twitter (MortgageGirlca) or on Instagram (MortgageGirl.ca)