Four Ways To Overcome Not Qualifying For A Mortgage
When trying to obtain mortgage financing, the last thing anyone wants to hear is that they can’t qualify for a mortgage or the mortgage amount expected. Being denied financing is frustrating, embarrassing, and disappointing. However, if this happens to you, it is important to clearly understand why your application was declined. Often, other financing options or opportunities could be considered depending on why your application was turned down or your qualifying amount reduced. At Keith Uthe Demystifying Mortgages, I understand that the mortgage process can get hard, especially when faced with rejection. This is why I have written down four ways to overcome not qualifying for a mortgage. Anyone seeking financing for a new home purchase or refinancing will find this beneficial.
1. Increase credit score
You may have a credit score that is too low as a result of not having enough established credit for lenders to determine your credit risk or a history of credit payment issues. If you do not have enough established credit, then mortgage brokers offer you access to lenders that will look at your history of utility payments and cell phone charges as a consideration for creditworthiness. Some clients are dead set against any kind of credit card. But, having at least one liability with a two-year history, such as a credit card with a limit of $2500, or another liability like a car loan, student loan, or RRSP loan, can really help when used wisely.
If the issue is your credit payment history, a mortgage broker can help you understand what alternate lending options exist and what the best steps are to improve your score so that you can qualify for lending. Sometimes the solution can be as simple as reporting an error on your credit report that needs to be corrected. In other cases, all you need to do is work with a professional to get the issue solved or find an alternative solution. I work with credit specialists who can help clients improve their credit score and sometimes very quickly if it is as simple as outdated reporting.
2. Save for the down payment
Not having the required down payment will be an issue for qualifying. When buying a primary home, you could need as little as a 5% down payment. Depending on the market you are buying in, it may be a challenge to save enough money, or the down payment amount might be quite a bit more than in a smaller market. This is where working with a mortgage broker can really help you to find other options to get all or part of that down payment needed, especially when you don’t have sufficient savings or gifted funds.
If you can save at least 1.5% of the purchase price, then there are other borrowed down payment options for consideration. Not all mortgage lenders participate in these types of mortgage financing programs, so it is best if you work with a mortgage broker that can acquire this service for you. That said, it is essential to note that all amounts being used for the down payment and closing costs need to be provable with ninety-day account history.
3. Calculate usable income
The type of income you earn and your employment history can be an unexpected hurdle in the process of applying for a mortgage. Just because you are earning income does not mean you can get a mortgage. There are key questions that help brokers and lenders determine what income can be used and what income can not for calculating the debt servicing under the guidelines of the government. For example:
a. Are you business-for-self, an employee, or retired? (This answer dictates which series of questions will follow. Below are the employee questions)
b. Is your pay a salary or hourly payment?
c. Do you have guaranteed weekly hours if you are paid hourly?
d. Do you earn overtime, bonus, commission or shift differential, or government subsidy pay?
e. Do you or will you receive any other sources of income such as tips, child tax benefits, child support, spousal support, dividends, rental, government disability, etc.?
f. Do you have a second job?
g. Have you had this job for at least two years?
h. Will you have parents or siblings living with you in the new house?
As you can see from the above, the income question can certainly be more complicated and in-depth than many applicants realize, and as a result, they are not using all of the qualifying income that they really could be. Working with a mortgage broker will help you understand your financial situation and make better decisions accordingly.
4. Avoid making big changes
Changing employers or taking on new debts during the mortgage application process will cause huge problems as lenders often check credit only days before funding, and they typically will have lawyers ask employment verification questions as part of a Statutory Declaration in the final mortgage documents. So, hold off on the new furniture, new car, and new employment until the mortgage is funded and closed.
If you are looking for a mortgage broker and specialist in Calgary, Alberta, then reach out to me at Keith Uthe Demystifying Mortgages. My goal in every conversation or interaction that I have is to impact that person’s life in a way that could help them create a financial life by design so they can move towards a life of abundance. My experience, training, and knowledge as a Smith Manoeuvre Certified Mortgage Professional, Real Estate Investor, Certified Real Estate Investment Adviser and Mortgage Associate all play a part in what I give to those that I work with. I offer services like first time home buyer mortgage, mortgage refinance, switch and transfer mortgage, debt consolidation mortgage, equity mortgage lending, construction mortgages, commercial mortgages, business financing, private lending, real estate investment advising, rental property financing, renovation financing, flip financing, spousal buyout mortgage, and Smith Manoeuvre Mortgages. I offer my services to clients across Calgary, Red Deer, Lethbridge, Edmonton, and Medicine Hat in Alberta. To learn more about my services, please click here. To get in touch with me, please click here.