I get many inquiries each month from those who were declined by their bank and want to see what other options are available. Most of the time I can find a solution however sometimes, the timing is just not right for the client. In this case, I set up a game play on exactly what is needed qualify for a mortgage in Ottawa in the future.
Top five reasons people do not qualify for a mortgage in Ottawa with their bank:
1) Insufficient down payment
Cash back for down payment and no down payment options have unfortunately been eliminated. With that, you now need to come up with the typical minimum down payment of 5%. However it’s important to note that there are still no down payment from savings options available. These options are called flex down mortgages.
2) Insufficient income
With house prices continuing to rise at a faster pace then incomes, this can create a large spread between one’s house price desires and what they actually qualify for. A good rule of thumb is that one can qualify for a mortgage of approximately 4.5 times their annual income. Therefore, someone with a $50,000 annual salary, could potentially qualify for a mortgage of $225,000.
3) Tightening of mortgage rules
Mortgage guidelines have been tightening for the last 10 years approximately. The tightening has been in a variety of areas from amortizations, debt to income ratios, down payment, the stress test, self employed applicants, secured line of credits, rental properties and more.
Fortunately in the last month there was a positive change in mortgage guidelines with the benchmark qualifying rate being reduced.
4) Insufficient credit history or length of time with strong credit history
A lender typically wants to see at least two revolving credit items. Examples are a line of credit and credit card. They want to see the items being paid on time for at least two years. Those with limited credit items or limited history may face challenges when qualifying.
5) Too much debt
With consumer debts reaching all time highs, this can have a large impact on one’s debt servicing ratios. A total debt of $30,000, for example, will mean a debt payment in your liabilities of $900 a month regardless of what your actual payments are. This will mean a house price reduction of approximately $90,000 by having this debt.
Fortunately a mortgage broker can help with alternative solutions and stepping stone solutions to many of these challenges. If you are not having success with your bank, please call me today and I can what one of my dozens of other banks and lenders can do for you.
Having trouble qualifying for a mortgage in Ottawa?
There may come a time when your finances are not quite where they need to be to qualify for a mortgage in Ottawa with your bank. However, during this time you may want to buy a house, stop renting and start building equity.
Financial challenges that can arise from a separation or starting a family. Also from, a change of employment and the tightening of the mortgage rules, as examples. These challenges can make for a less favourable mortgage application.
Sadly, during these challenging times, one can quickly see that their bank was there for them in the good times but cannot assist in the down times.
A mortgage broker can help
This is one of the many reasons to review your mortgage options with an Ottawa mortgage broker. Your mortgage broker in Ottawa has access to not only banks, but also credit unions. In addition, they have access to alternative lenders, private lenders and more. With more options, you are more likely to discover a solution and qualify for a mortgage that meets your current financial needs.
Alternative and private lenders
Alternative lenders and private lenders may be able to provide a temporary solution for you. This solution can assist while you, for example, are working towards two strong income years with self employment. Or, while you are getting back on your feet after a bankruptcy and now have bad credit.
You can look at a one year term with an alternative lender or private lender. The shorter term will allow the flexibility to review your finances each year. At the end of the year we can see if moving back to a traditional lender is an option.
On a $300,000 house, with a 20% down payment, an example alternative mortgage or private mortgage payment over a traditional lender payment is approximately $95 a month higher. Although not ideal, if this allows you to stop renting, to take advantage of possible capital appreciation of your house and to gain equity from paying down your mortgage, an alternative lender option may be a good fit for you.
During this time, your Ottawa mortgage broker can work with you and help set goals. Also, to get you on the right track to qualify for a mortgage in Ottawa with a traditional lender.