Can You Be Disqualified from Obtaining a Mortgage?
You have decided that you want to be a part of the booming real estate market and lock in interest rates that have never been lower. Many people have generated wealth from investing in real estate. When it comes to whether savings are best invested in the stock market or put towards a down payment on a house, real estate experts tend to agree that long-term investment stability is best achieved by allocating these funds towards purchasing a home.
Properties across the Province are appreciating in the double digits. Over the last year appreciation in Ontario, properties have never been so significant. The Toronto Regional Real Estate Board reported that February saw the average home price surpass the $1 million unprecedented mark. In February the number of home sales increased by a whopping 52.5% from house sales recorded in February 2020. In February 2020, Toronto home sales totaled 10,970 up from 7,193 homes sold in February 2020.
As the market continues to be on fire coupled with very low mortgage rates, more and more Ontarians are taking out mortgages to purchase homes. Ontario homeowners are also looking to take out additional mortgages (different types of second mortgages) on their homes to help finance various goals or invest in additional rental properties.
The numbers reflect this trend. Early February reported by Statistics Canada revealed that household mortgage debt increased by 7.4% by the end of 2020 compared to the same time in 2019 which increased the total mortgage debt held by Canadians to $1.66 trillion.
What Can Prevent you From Obtaining a Mortgage?
In the mortgage process, it is important to understand that lenders are looking for specific conditions a borrower should meet. If unable to meet this criterion, an Ontario borrower may be turned down by the banks and big lenders.
If you are unable to meet all these conditions, there are well-established private lenders in Ontario that can negotiate short-term mortgage loans. Private lenders can lend out in a straightforward process and the time to obtain mortgage financing is shorter than the time taken by banks.
Mortgage Broker Store can help direct you to a private lender in your area if you have not had any luck applying with a bank for mortgage financing. You may have difficulty being approved for a mortgage loan through a bank or big lender for the following reasons:
- Insufficient down payment– If you are looking to take out a first mortgage (Principle Mortgage) on a home one of the most important things you can do is start saving now! Look into the various ways that you can add to your down payment savings including Government programs such as the First Time Homebuyers Program that can match your down payment. Talk to family about supplementing your down payment and look to your RRSPs. The Government in 2019 increased the amount an individual can take out without tax penalty as a first-time home buyer from 25 Thousand to 35 Thousand dollars. Banks will require a healthy down payment and so will other traditional lenders. Keep in mind that if you are taking out a second mortgage the loan will be based on the degree of the existing equity in your home so a down payment in this instance is not necessary.
- No credit history– Lenders will be scrutinizing your history of being responsible with credit. They will look at your credit history to determine if you are a reliable borrower. Without a credit history, it is difficult for lenders to obtain a picture of your reliability in terms of paying back your mortgage loan. Take out a credit card, make purchases and pay the balance off in full every month to establish a good credit pattern.
- Credit score– Along with assessing your overall creditworthiness, a lender, especially the big banks and credit unions will be looking at your current credit score. Banks will expect a credit score of at least 600 while credit unions or trust companies will approve a mortgage loan with a credit score of 550 and over. There do exist well-established private lenders in Ontario that will be able to negotiate short-term (between 1-3 years) mortgage loans to those with damaged credit and have credit scores too low to be approved by the banks. These lenders will assess the Loan to Value (LTV) and look at the degree of the existing equity in your home when determining loan amounts. Generally, a private lender will not exceed an LTV of 75% ( which is simply 75% of the appraised value of your home) and will prefer to see 25% equity in your home.
- Too much household debt high debt– If you have outstanding household debt, some banks may deem your debt ratio versus your household income too high to approve a mortgage loan. The debt ratio plays a very significant role in the banks’ decision to loan or to deny a mortgage loan application. Try to pay down these debts to increase your chances of being approved and to secure the best terms on your mortgage loan.
- Unsteady income– Banks will prefer easy to prove traditional full-time salary-based income and substantial household income to approve mortgage loans. If you are a contract worker or self-employed, you may be denied a bank’s mortgage application. A private lender will be able to negotiate a mortgage loan for these applicants by looking at other criteria. For second mortgage equity and LTV will play the biggest role in mortgage decisions made by private lenders.
- Insufficient income– Banks will require substantial household income to approve mortgage loans. Preference is given to full-time salaried employees over contract-based or self-employed. Private lenders may be able to negotiate mortgage loans to those homeowners seeking mortgage financing even despite the amount and type of household income basing the approval criteria in the LTV and existing equity as your home is used to leverage the mortgage loan.
- Recent job change– Although some may feel that the best time to take out a mortgage whether it be a primary or a second mortgage on an existing property is when you have a new job with perhaps a higher salary. The banks will however require you to demonstrate between 3 and 6 months of payslips as part of the required documentation. It is best to make any new career changes or take on a new position after you have been approved for a mortgage loan.
- Missing application information– You must go over your paperwork very carefully with a broker before submitting any application to a lender. If anything is not signed or relevant information omitted, an application can be denied for mortgage financing.
Mortgage Broker Store Can Help in the Mortgage Loan Application Process
At Mortgage Broker Store we are very experienced in the mortgage loan application process and can guide you with what may be the best mortgage solution for your unique financial circumstances.
If credit issues have led to banks turning you down for mortgage financing, we have access to a wide network of well-established private lenders throughout the Province. We will be able to direct you to a private lender to negotiate a mortgage loan using the valuable equity in your home. A private mortgage loan may be the best short-term solution to obtain financing quickly while giving you the needed time to improve your credit standing to ensure the best terms on your next mortgage loan.