Thank you for your application to Fraser Valley Rent 2 Own. I thought I would summarize my evaluation of your application and our further phone discussion.
You said you were tired of renting, and wanted some of the money you spent every month to go towards ownership. That is what I hear regularly; you are certainly not alone in that desire. In fact, I have 2600 applications from people like you.
I had rated your application as B, meaning that there may be possibilities but it is not a sure thing that we can qualify you, because there are a number of grey areas.
First, your application indicated a household income of about $3000 per month. This number is really important, because it is the key ingredient in determining what value of property you may qualify for—which, by the way, is a federally regulated formula. On my further questioning, though, you clarified that this number was actually based on taking home $1500 every two weeks.
Since we can use your gross income, before deductions, to calculate your maximum qualification level and since you get paid every two weeks, not twice a month, the $3000/month actually works out to about $3900 per month. You said your wife didn’t work, but you also had two children under age ten, for whom you get a total of $900 per month in child benefits. Adding this all together, your household income is actually $4800 per month, or $57,600 per year.
As a rule of thumb, we can take that gross figure and multiply it by 4.5 times to determine the value of property that you will qualify for under federal regulations. We used to be able to go considerably higher than this, but the feds are scared spitless that people will get themselves into too much debt and cause an economic melt-down, so have stepped in to toughen the standards. The 4.5 factor is based on qualifying for a 90% mortgage and having savings of 10% for a down payment at the end of the term.
I should clarify that some people may still be able to qualify for a 95% mortgage but, again, federal regulations and bank policies have made that so difficult to qualify for, that we do not feel it wise to aim for only 5% down. The risk of failure at the end is too high. We do not want to set up our clients for failure, but for success.
You can see that, using the above rule-of-thumb, your qualification limit comes to about $259,200. But, on further questioning, you indicated you also have a vehicle loan with a monthly payment of $376. This will also impact your home value qualification limit, as the same federal regulations that dictate how much of your total monthly income you can spend on housing also dictate how much of your total monthly income you can spend on all debt. The total debt figure allowed is 5% higher than housing alone. So, with a monthly income of $4800, any other debt payments greater than $240 will impact your qualification level further.
Doing all the calculations, your qualifying limit is now reduced to about $240,000. You can see that you would not qualify for the $600,000 single family home you were hoping for in your application. Unfortunately, home prices in all parts of the Fraser Valley are such that you will not likely qualify for any single family home. Would you be okay with a townhome or condo?
If you require a single family home, then, unfortunately, we cannot help you. We cannot beat the rules; we can only help you to reach the qualifying requirements over time, while you are already living in the home you will own at the end of the term, and for a price that is fixed now, instead of dependent on future market fluctuations. We do so with a plan to help you reach that qualification standard.
In your case, you can’t qualify for the mortgage now because you don’t have 10% available for a down payment. Our plan for you would be that your rent to us during the rent 2 own period would be higher than otherwise because it would include an amount, in addition to basic rent, set aside each month to grow your initial deposit from the $15,000 you have available now, to 10% (plus closing costs) over the term. For that $240,000 property value, the savings component would be about $442 per month on top of the basic rent of $1392, on a three-year term.
If you can afford that monthly amount, and you would be satisfied with a property that fits within that qualifying limit, then we can help you with a rent 2 own program that will see you qualifying to become a homeowner at the end of the term.
I notice your neighbour from down the street has also sent in an application, with an entirely different situation preventing her from getting a mortgage now. Please let her know that I’ll get back to her next week regarding her situation.
Fraser Valley Rent 2 Own
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If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them ― Henry David Thoreau