Top 5 Reasons You May Not Qualify For a Mortgage
Here are the top 5 reasons why people don’t 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 certain areaa, sometimes people simply don’t earn enough money to manage a mortgage payment, and property taxes 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, or in some instances, home buyers will look for someone else to go on title to add income to the application.
#3 New Mortgage Math
For those with less than 20% down payment, a max of 44% (total debt servicing – TDS) of gross monthly income should be the stabdard to cover the same and other consumer debts such as loans, credit cards and lines of credit.
#2 Credit Issues
Some people don’t realize if they are late on 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 credit often requiring your credit report to be pulled by the bank, auto dealership and credit card companies 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 the case with bankruptcy.
#1 Too Much Debt
There are a growing number of consumers doing – well – 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.
via Dominion Lending