Wednesday, April 17, 2024

How To Qualify For A Higher Mortgage

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Boost Your Credit Score

How To Qualify For A USDA Home Loan With High Debt Ratios | USDA Loan Pro

The higher your credit score, the more trustworthy a borrower youll seem to be in the eyes of lenders — and thats a good thing when youre asking for what could be a sizable home loan. You can boost your credit score in a number of ways: First, be on time with all of your bill payments in the months leading up to your application. Your payment history is the most important factor that goes into calculating your credit score, so you cant afford to be late.

Next, pay off a chunk of existing debt. Doing so will lower your credit utilization ratio, which measures the amount of available credit youre using at once. The lower that number, the more it helps your credit score.

Finally, avoid opening new credit cards in the weeks prior to applying for your mortgage. Each time you apply for a new type of financing, it results in a hard inquiry on your credit record, which can knock down your score.

Who Can Benefit From A Second Mortgage

Second mortgages are often recommended as a short-term financing solution. The high interest rates along with the large penalties and fees can discourage individuals from taking a second mortgage. In addition, an applicant must have sufficient equity in their home in order to support a second mortgage.

Since income and credit history both play an integral part in the qualification process of a second mortgage, many Canadians 55 plus or Canadians who are approaching retirement may not qualify.

What Exclusions Apply To Projected Income Mortgages

This mortgage program does have some exclusions you should be aware of. Generally, they are only available for new purchases, refinances or mortgage transfers for traditional homes, like condos or houses in residential neighbourhoods. As mentioned above, the home must be your primary residence.

Projected income mortgages are not available for secondary homes, rental properties and mobile homes. They also can not be used for purchase plus improvements programs or progress draw mortgages .

Other exclusions may apply. Its best to speak with a mortgage broker to find out if you can qualify for this program. Some lenders can be more lenient than others, which can make this a bit of a gray area when it comes to qualifying for a mortgage.

Contact us today, and well learn more about your case to be able to recommend a mortgage program that works for you.

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Do I Have Enough Saved

Since lenders will focus on your ability to cover mortgage payments, make sure you have enough funds for all the costs involved. That includes appraisals, inspections, taxes and your down payment. You will also need reserves of 6-12 months of mortgage payments. Estimate high and don’t start the process until youre sure you have enough money to cover everything.

If you answered “yes” to all of the above questions, a jumbo loan may suit your needs. To ensure you are getting the best deal on your jumbo mortgage, its a good idea to speak with aHome Lending Advisor. They can help you apply for a jumbo mortgage, compile and submit documentation and answer any questions you may have about the loan application, closing process and everything in between.

Put At Least 20 Percent Down

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If youre buying a home and your down payment is at least 20 percent of the homes price, you wont have to pay for private mortgage insurance , so you might be able to get a bigger loan. PMI, which protects the lender if you stop paying your loan, becomes part of your monthly payment and can decrease the size of the loan youre eligible for.

If you still have cash available after you make a 20 percent down payment, you could pay your lender more upfront to buy down your interest rate.

Not only will you qualify for a higher loan amount, but you will save thousands of dollars over time, too, says Casey Fleming, a mortgage advisor at C2 Financial Corp. in San Jose, California.

Read Also: How To Understand Mortgage Payments

Reverse Mortgage: An Alternative To A Second Mortgage

For Canadians who are retired or approaching retirement, a reverse mortgage can be a great alternative solution. The CHIP Reverse Mortgage® in Canada is a loan secured against the value of your home. To be eligible in Canada, the homeowner must be at least 55 years of age and can qualify for up to 55% of the value of their home in tax-free cash. In addition, you can continue to live in your home and maintain full ownership. The best part is, the reverse mortgage will also help consolidate your debt so that you no longer have to make any monthly payments.

Just like a second mortgage, a reverse mortgage does have higher interest rates. But, unlike second mortgages, there are no regular mortgage payments required for as long as the homeowner live in the home. Once the homeowner move, sell or pass away, their reverse mortgage will become due.

A reverse mortgage is a great solution for Canadians 55 plus who are house rich and cash poor. Many retirees have found that they have not saved enough to live the retirement they want and may be struggling to make ends meet, yet they are living in a property that has the potential to help pay them back. A reverse mortgage can help Canadian homeowner live a better retirement on their own terms.

Additional Tips On Factors Affecting Home Loan Eligibility

  • Income This is perhaps, one of the most important factors that banks consider while determining your eligibility for a home loan. Your eligibility for a home loan is higher if your income is on the higher side simply because your repayment capacity is higher. Your maximum loan amount will also be enhanced if your earnings is high.
  • Age Age is also another factor that affects your home loan eligibility significantly and also helps the lender to determine the term of the loan. The younger you are, the higher will be your eligibility for a home loan.
  • Lenders will look at your credit score to determine your home loan eligibility and 750 is the minimum score that you should have.
  • Debt Obligation – If your debt obligation is high, your eligibility for a home loan may be lower simply because lenders will assume that you may not be able to pay the EMIs for the home loan.
  • Occupation – Your occupation is a vital determinant of your eligibility for a home loan. If you are a salaried individual, your eligibility will be higher since you have a stable source of income. Professionals such as doctors, architects, etc., and self-employed individuals such as businessmen are also eligible for a home loan.

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Set Your Sights On A Less

If you can’t qualify for the amount of mortgage you want and you aren’t willing to wait, you can opt for a condo or townhouse instead of a house, which might be less costly. Also, opting for a smaller home with fewer bedrooms, bathrooms, or less square footage as well as considering a more distant neighborhood may provide you with more affordable options. If necessary, you could even move to a different part of the country where the cost of homeownership is lower. When your financial situation improves over time, you might be able to trade up to your ideal property, neighborhood, or city.

What To Do If A Lender Refuses Your Mortgage Application

Qualifying For A Mortgage With Student Loans And High DTI

A lender could refuse you for a mortgage even if youve been preapproved.

Before a lender approves your loan, theyll verify that the property you want meets certain standards. These standards will vary from lender to lender.

Each lender sets their own lending guidelines and policies. A lender may refuse to grant you a mortgage if you have a poor credit history. There may be other reasons. If you dont get a mortgage, ask your lender about other options available to you.

Other options may include:

  • approving you for a lower mortgage amount
  • charging you a higher interest rate on the mortgage
  • requiring that you provide a larger down payment
  • requiring that someone co-sign with you on the mortgage

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Save For A Bigger Down Payment

A larger down payment reduces the amount your lender needs to loan you. This makes your loan less risky for the lender because they lose less money if you default. Saving for a larger down payment can help you become a more appealing candidate for a loan and can even convince a lender to cut you some slack in other application areas. Use these tips to increase your down payment fund:

  • Budget for savings. Take a look at your monthly budget and decide how much you can afford to save each month. Hold your down payment fund in a separate savings account and resist the temptation to spend any of it.
  • Pick up a side hustle. In the on-demand gig economy, its never been easier to earn extra cash outside of your job. Drive for a ridesharing service, deliver food for local businesses or pick up a few spare tasks on a site like TaskRabbit.
  • Sell some of your things. Sites like eBay, Poshmark and ThredUp make it simple to sell old things you no longer use. Search around your home for things you think you can sell and list them.

My Experience As A First

Being a first-time homebuyer is tough enough. As a single first-time homebuyer, I decided to take on the added responsibility of being a landlord. Following the footsteps of the host of HGTVs Income Property’s Scott McGillivray, I decided to live in the basement and rent out the upstairs to tenants.

When I purchased my home in August 2012, despite a sizable down payment of $170,000, I had difficulty qualifying for a mortgage. It was only when I decided to become a landlord that I was able to purchase a house instead of a condo. In two short months, I will be mortgage-free.

If youre thinking about going this route, its a good idea to speak with lenders to see what documentation youll need to provide in order for the rental income to be included in the debt service ratios. Some lenders will require you to have a signed lease. This can be tough since its next to impossible to show the home youre buying to prospective tenants before youre the legal owner. Each lender is different, so get the facts and dont forget to get pre-approved for a mortgage before house hunting.

Sean Cooper is a Financial Journalist and Personal Finance Expert, living in Toronto, Ontario. He offersUnbiased Fee-Only Financial Advice, specializing in pensions and the decumulation of financial wealth in retirement. Follow him on Twitter and read his blogs and request his writing services on his personal website:

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Pay Off Your Existing Debts

In addition to your income, your mortgage provider will look at your income-to-debt ratios to determine how large a mortgage they will approve you for. For many people, this can be the limiting factor in mortgage affordability, even more so than their down payment.

To improve your debt-to-income ratio and get pre-approved for a larger mortgage, youll want to pay off any existing debts that you have. This includes credit card debts, other mortgages, auto or boat loans, student loans, as well as any other lines of credit that require regular repayments.

How Can I Qualify To Borrow More

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If youre disappointed by the how much can I borrow results, remember that there are many factors at work. Small improvements in one or more can make a substantial difference:

  • A bigger down payment always helps. The more money you put down, the better youll look in the eyes of the lender.

  • Be a tactical buyer. If school districts wont play a role in your family for years, consider finding a home in a transitioning neighborhood maybe buying a starter home rather than a forever home. Youll likely get a better home value and wont need to borrow as much.

  • Reduce debt even a little. Paying off or down a credit card or two can help in several ways. Your debt-to-income ratio will go down and you may even get a nice bump in your credit score.

  • Recommended Reading: How To Recruit Mortgage Loan Officers

    Current Minimum Mortgage Requirements For A Usda Loan

    Down payment. Borrowers that meet the USDA income limits can purchase a home with no down payment. Money needed for closing costs can come from your own funds or from a gift.

    USDA guarantee fees. The USDA requires two types of guarantee fees instead of mortgage insurance. The fees are charged to offset the costs of the rural loan program to taxpayers. The first is a guarantee fee of 1% of the loan amount and is typically financed. The second is an annual guarantee fee equal to 0.35% of the loan amount, which is divided by 12 and added to the monthly payment.

    . Although the USDA doesnt set a minimum score, USDA-approved lenders typically require a minimum credit score of 640.

    Employment. USDA borrowers must have 12 months of stable income. If youre self-employed, a two-year history is required.

    Income limits. The USDA counts the income of all adult household members to ensure the household income doesnt exceed the program limits in your area. Total household income for a USDA loan must be at or below 115% of the median household in the area youre buying. Use the income eligibility search tool to check on the limits in your state.

    DTI ratio. The front-end DTI ratio maximum is 29%, while the back-end DTI ratio maximum is 41%. USDA borrowers with a credit score of 680 or higher may qualify with higher front- and back-end DTI ratios of 32% and 44%, respectively, with proof of steady income and extra cash reserves.

    Occupancy. USDA financing is for primary residences only.

    What Else Do Lenders Look At When You Apply

    As we mentioned, your credit score is not the only factor lenders examine before they approve or decline your application. They also want to see a favourable history of debt management on your part. This means that on top of your credit score, lenders are also going to pull a copy of your to examine your payment record. So, even if your credit score is above the 600 mark, if your lender sees that you have a history of debt and payment problems, it may raise some alarms and cause them to reconsider your level of creditworthiness.

    Other aspects that your lender might look at include, but arent limited to:

    • Your income
    • The amount youre planning to borrow
    • Your current debts
    • The amortization period

    This is where the new stress-test will come into play for all potential borrowers. In order to qualify, youll need to prove to your lender that youll be able to afford your mortgage payments in the years to come.

    Theyll also calculate your monthly housing costs, also known as your gross debt service ratio, which includes your:

    • Potential mortgage payments
    • Potential cost of heating and other utilities
    • 50% of condominium fees

    This will be followed by an examination of your overall debt load, also known as your total debt service ratio, which includes your:

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    Mortgage Loan Preapproval And Loan Prequalification

    After basic calculations have been done and a financial statement has been completed, the borrower can ask the lender for a prequalification letter. What the prequalification letter states is that loan approval is likely based on credit history and income. Prequalifying lets the borrower know exactly how much can be borrowed and how much will be needed for a down payment.

    However, prequalification may not be sufficient in some situations. The borrower wants to be preapproved because it means that a specific loan amount is guaranteed. It is more binding and it means the lender has already performed a credit check and evaluated the financial situation, rather than rely on the borrowers own statements like what is done in prequalification. Preapproval means the lender will actually loan the money after an appraisal of the property and a purchase contract and title report has been drawn up.

    How To Increase Your Mortgage Affordability

    Are Your Debt Ratios Too High for a USDA Loan?

    If you want to increase how much you can borrow, thus increasing how much you can afford to spend on a home, there are few steps you can take.

    1. Save a larger down payment: The larger your down payment, the less interest youll be charged over the life of your loan. A larger down payment also saves you money on the cost of CMHC insurance.

    2. Get a better mortgage rate: Shop around for the best mortgage rate you can find, and consider using a mortgage broker to negotiate on your behalf. A lower mortgage rate will result in lower monthly payments, increasing how much you can afford. It will also save you thousands of dollars over the life of your mortgage.

    3. Increase your amortization period: The longer you take to pay off your loan, the lower your monthly payments will be, making your mortgage more affordable. However, this will result in you paying more interest over time.

    These are just a few ways you can increase the amount you can afford to spend on a home, by increasing your mortgage affordability. However, the best advice will be personal to you. Find a licensed mortgage broker near you to have a free, no-obligation conversation thats tailored to your needs.

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