To qualify for a mortgage, you must satisfy a lot of conditions to convince the lender that you will be responsible and capable in paying off that mortgage. It can be a rigorous process.
But, even if you are responsible and capable, there are certain things that may automatically disqualify you from a mortgage or at least push you below the qualifying threshold.
Some of these are obvious, like being in bankruptcy, having a low credit score or not having sufficient down payment. But there are many lesser-known items that may sink a person who might otherwise be well qualified for getting a mortgage.
Here are some of them:
- You haven’t had a sufficient lapse of time after clearing a Bankruptcy. After being discharged from a bankruptcy, you need a minimum of two years from the date of discharge before you can be considered for a mortgage. If real estate was included in the bankruptcy, you need a minimum of six years (i.e., until the bankruptcy falls off your record) regardless of whether you meet all other conditions. And, if it is a second bankruptcy, don’t even think of applying for a mortgage until 14 years have elapsed.
- You haven’t had a sufficient lapse of time after paying off a Consumer Proposal. A consumer proposal is treated much like a bankruptcy. Again, there is a minimum 2-year waiting period after having your proposal fully paid off, regardless of your other qualifications. Be cautious before filing a consumer proposal; the consequences aren’t always identified in advance.
- You have too much other debt. There is only a small room for other debt payments (5% of your gross monthly income) before those payments will reduce your ability to support a mortgage, and therefore the amount of mortgage for which you will qualify. If your other debt payments are greater than the allowable 5%, the mortgage payment amount for which you qualify is reduced by that overage.
- You have co-signed a loan or mortgage for someone else. If you have co-signed any loan, you are considered to be fully responsible for it, just like the other party. Therefore, the payment on that loan, even if the other party pays 100% of it, is counted as a monthly debt obligation to you in calculating the amount of mortgage for which you will qualify.
- You have mandated child support payments. These are debt obligations, just like any other, and will be counted against your ability to support a mortgage, limiting the amount for which you may qualify.
- You don’t have a credit card. You need a minimum of two credit lines on your credit file, and at least one of these must be a credit card. The other can be a second credit card, a vehicle loan, a line of credit, etc. Some people think that not having or using credit cards is a responsible way to go. Not so! Responsible use of a credit card is the best evidence available to a lender that you are an acceptable risk.
- Your two credit lines are too new. You need to have had those two qualifying credit lines for a minimum of two years before they demonstrate an acceptable history of responsible payment to warrant mortgage approval.
- You have a Collection on your credit report. Any collection must be paid off fully before you will be approved. Unlike that for a bankruptcy or consumer proposal, though, there is no minimum waiting period after payout, though the presence of the collection will still have a drag on your credit score until it falls off your report. The same holds true for a Judgement.
- You owe taxes to the Canada Revenue Agency. This will be an automatic decline until CRA is paid off in full. (Trust me, I know—I was once declined until I paid off the $14.00 that I was outstanding on my tax bill.) You will also likely be declined if you are not up to date in filing your taxes.
- You credit report shows late payments. Even one late payment within the preceding year may disqualify you from a mortgage.
- Your income is from self-employment, and you don’t have at least two years of income tax returns showing how much you earned from that self-employment.
- You don’t have an acceptable relationship with your co-applicant. Although any two or more people can buy an investment property together, that is not so for an insured mortgage on an owner-occupied property. The lenders will delve into the relationship of the co-applicants and may deny the mortgage if they are not satisfied with the arrangement.
- Your down payment doesn’t come from an acceptable source. Your down payment must come from your own savings or as a gift from a very restricted set of gifters (basically a spouse, parents, children or siblings). Alternatively, if you can show that the down payment has been in your bank account for a minimum of 90 days at the time of applying for a mortgage, lenders will generally not question its source, as it will be considered savings.
- One of you qualifies, but your co-applicant doesn’t. While several applicants can add their incomes and down payments together to qualify for a higher amount, in every other respect each applicant must fully qualify on their own.
If you have challenges in any of these areas, a rent 2 own program might be a good fit for you. It never hurts to check it out.
