My Mortgage Application Was Denied, Now What?

Mortgage Application was denied, now what?

Owning your home is not only a dream but a financial goal for many in Canada. However, factors like housing prices, interest rates, and new mortgage rules that came into effect have made it a little more difficult to get a home.

If you have recently had your mortgage application denied you may be wondering about some of the next steps you can take. Before you put your dream on hold, here are a few things to consider

Why was your mortgage application denied?

The first thing to consider after your mortgage application was denied, was why it was rejected in the first place. Your credit report or credit history may be one of the reasons. A low credit score can sometimes act as a warning sign to your lender. It would be a good idea to check your credit report to see whether it is accurate and then get to work on improving that credit score.

Proof of income might be another reason why you may not get that mortgage. For those that are self-employed or business owners, it may be a little more difficult to get approved for a mortgage, as lenders most often associate them with unpredictable income and are a higher risk.

The amount of debt you have can also affect your ability to get approved. Lenders will look at something called your debt service ratio when considering your mortgage application. Your Total Debt Service Ratio (TDS) is calculated by adding your family’s monthly mortgage payments, property taxes, and other debt payments, then dividing it by your family’s gross monthly income.

Is it really time to buy?

If your mortgage application was denied and you have considered the reasoning behind it, it is probably a good idea to double check to see if it is an appropriate time to buy a home. If right now you find that you have a lot of debt and are having difficulty paying some bills on time, it may be worth it to pay off some of that debt and set up a budget to put towards your home purchase. If you have however gone through your finances and figured that right now is a good time to buy, you can consider other available options.

What other options are available?

It is a big misconception when it comes to big banks and mortgage loans. There are other lenders available. Not only are there other lenders out there, some of them include: mortgage companies, insurance companies, trust companies, loan companies and credit unions.

Mortgage Brokers can help

If your application was denied, an experienced mortgage broker can work with you to help determine if it is indeed a good time for you to buy a home. They can help investigate some of the alternative options available Mortgage brokers negotiate on your behalf and have relationships with various lenders. Meaning a mortgage broker can help get you approved, even if your first application was denied.

5 Important Tips for First-time Home Buyers

first time home buyer tips

The cost of buying a home is the biggest investment you will ever make. Buying a home is one of the biggest decisions you will ever make. It can also be a bit complex, especially if you don’t know what to expect. The rising home values and stricter guidelines can also make it difficult for first-time buyers. From mortgages to tax credits, here are some tips to consider if you are a first-time homebuyer.

1) Research the area and the market

Most people looking to buy a home know which neighbourhood or community they would like to live in. Unfortunately, it isn’t really a practical option when it comes to a value-cost perspective. While you are looking at the neighbourhood it is great to check out the local amenities, quality of the neighbourhood and consider what the travel to and from work will be like. Research the area thoroughly and decide what the right compromise might be, given your lifestyle, budget and needs.

2) Work with a broker

Fewer Canadians are going straight to their bank. Instead they are heading to mortgage brokers for a better set of options that are available. There are more than just the five major banks when it comes to the mortgage industry and there is a good chance that a smaller lender will provide you with a better rate. Brokers work on your behalf and look through the market for the best rate for your situation, this isn’t always possible when using a bank.

3) Make use of government programs

There are several first-time buyer governments grants available to help make your home buying experience easier. The Homebuyers Plan allows you to purchase your first home with as little as a 5% down payment. This is a great opportunity to become a homebuyer and start building equity at a younger age. The RRSP homebuyers’ plan also allows you to withdraw up to $25,000 from your RRSP account to buy or build a qualifying home.

4) Don’t feel rushed

Certain markets can create a sense of urgency to buy a home, one that may not even meet your criteria. While it is important to have a sense of purpose when buying a home, there will always be new listings popping up each and everyday. If you set your criteria wide enough, you’ll be sure to find something that suits your needs in a reasonable time frame.

5) Calculate all the costs of homeownership

In addition to your mortgage payment, you also need to factor utilities (heat, hydro and gas), insurance and property tax. When it comes to closing costs, there are also costs associated with buying a home, luckily first-time buyers in Canada save the Land Transfer Tax and get a nice tax refund.

Breaking Your Mortgage Early

breaking your mortgage early

Sure, it started out great, it got you the home you dreamed of and met your financial needs… back then. But things have changed, now you are probably looking to start a brand-new mortgage and end this one.

Why break it?

Mortgage break ups can happen for a variety of reasons. Life changes, things happen in your life, maybe you need a bigger home to accommodate your growing family? Maybe you need to move for your new job (which is in a new city). These are some common reasons why people may need to break their mortgage before the five years are up. A decrease in interest rates, while giving you the ability to save some money is also another common reason to break your mortgage early.

Why you may want to break it

When interest rates drop, it may be tempting to see what other options are out there for your mortgage. A lower interest rate means that your mortgage payments will be reduced each month and you’ll save money in the long-run. On the opposite end though, if you do stay with your mortgage you may be able to pay off your mortgage earlier.

You should be careful when you are looking at your options. There are some qualified professionals to go to (like myself) that can help you determine which route you may want to go. It is important that you are aware of the negative impacts of breaking your mortgage early. there are penalties and fees attached when you decide to break your mortgage contract that could mean that you end up not saving any money at all. Don’t forget that you may now need to pass the new mortgage ‘stress test’ to qualify for a new mortgage.

So, what happens when you decide to break your mortgage early?

So, you decided it is time to break your mortgage. Typically, penalties for breaking a mortgage agreement vary depending on the type of mortgage and the type of lender. In many cases, a smaller lender and a variable mortgage have lower penalty fees that bigger lenders and fixed-rate mortgages.

When it comes to paying the penalty, the penalty amount you will need to pay is calculated using something called an interest rate differential. You’ll likely end up paying the interest for the remainder of the term on the remaining balance, or the amount of three months’ interest on the remaining balance – whichever is greater.

Still unsure about if you should break your mortgage? Contact me today and I will go over all the options you have!

RRSP Home Buyer’s Plan

RRSP Home Buyer's Plan

One of the best sources for funding your mortgage down payment is using a Registered Retirement Savings Plan (RRSP). The Canadian Government’s Home Buyer’s plan allows first time home buyers to borrow up to $25,000 from your RRSP for a down payment. This is tax free! If you are purchasing a home with someone else, you can both access $25,000 from your RRSP. This means that combined you can have access of up to $50,000 ($25,000 each) for a down payment. Since this is considered a loan, it must be repaid within 15 years.

Eligibility

In order to qualify for the first-time home buyer plan you must:

  • The RRSP funds you borrow must be in your account for at least 90 days prior to their  withdrawal
  • You cannot have owned a home within the previous four years
  • If you’re buying with a spouse (or common law partner) who is not a first time homebuyer, you cannot have lived in a house they owned for 4 years
  • You have entered into a written agreement to buy or build a qualifying home
  • You must intend to live in the home within one year of purchase as your primary residence
  • If you have used the Home Buyers’ Plan before, you cannot have any outstanding balance due
  • You must make the withdrawal from your RRSP within 30 days of taking title of the home
  • You must be a Canadian resident

If you make a withdrawal from your RRSP and do not meet the first-time home buyer eligibility, this will be taxed as income and should be included in your income tax as taxable income.

Buying with a partner

If both you and your spouse (or common-law partner) meet the first-time homebuyer eligibility requirements, each of you can withdraw up to $25,000 from your RRSPs for a total of $50,000.

If only you qualify as a first-time homebuyer, you will be able to withdraw the $25,000, provided you have not lived in, as your primary residence, a house owned by your spouse or common-law partner.