After a marital split, arranging a mortgage can be difficult. Some people find it hard to qualify for a mortgage when they are on the hook for child or spousal support. The reason is most mortgage lenders consider these payments as a monthly liability, just like a car payment or other loan facility, and this effectively kills the Total Debt Service Ratio calculation.
Related Article: CMHC explains debt service ratios and mortgage affordability
Late in the spring, Bruce Dougherty found Ross Taylor & Associates while Googling this topic. He picked up the phone and called me to say he was in this exact predicament.
Bruce has an excellent job and makes $120,000 per year. He has since remarried and he and his new wife would like to buy their own home together. The problem is Bruce pays a combined $40,000 in child and spousal support to his first wife.
His bank advised him this is like having a $3,333 monthly debt payment ($40,000/12) and as a result they refused him a mortgage. He went to two different banks and stated his case, but was declined there also.
Fortunately, mortgage brokers have access to dozens of lenders, and there are a few who will look at these circumstances differently. It only takes one!
These lenders are willing to simply reduce Bruce’s annual income by $40,000, thus making it $80,000; but without any associated liability for the support payments.
Bruce has no other monthly obligations so $80,000 income is more than enough to qualify for a mortgage now.
Bruce was skeptical at first, as he had been researching the topic for over a month with no success. However I polled some mortgage broker friends across Canada, and within thirty minutes we had the names of two “A lenders” I could work with.
Bruce then made an offer on a new home for $461,000 and asked me if we could arrange a mortgage for him, even though he only had a five percent down payment. Merix Financial came through quickly with a five year fixed rate mortgage at 2.59%, which at that time was a highly competitive interest rate.
The take away. Although it’s true there is an incredible amount of information on the internet, in this case, Bruce found what he needed the old fashioned way – he picked up the telephone and called us.
If you or someone you know is having difficulty arranging a mortgage after a marital break-up, please tell them there is hope!