Mortgage fails – what can go wrong

The most common reasons you may not qualify for a mortgage

You don't make enough income

Mortgage lenders and their insurers have very strict guidelines as to how much mortgage you can be approved to carry. Often people's eyes are bigger than their stomach!

You are self employed

If you are self employed chances are you are able to reduce your gross income with business expenses when you file your income tax returns. But lenders are going to look at your taxes to decide how much to lend you.

Your dilemma becomes do you pay more taxes and qualify for best mortgage terms, or do you keep taxes payable to a minimum and pay a little bit more each month on your mortgage payment.

You are a part time employee

A mortgage lender won't want to include part time income on your mortgage application unless you have been at the same position more than two years.

You earn commission income

If you earn commission your income is variable and unpredictable. Mortgage lenders will want to see you have been doing this for at least two years and will take an average of the NET income reported on your tax returns.

Unstable employment

If you frequently change jobs, or are so new to your current position that you are still on probation, these are red flags to a mortgage lender. In fact, in most cases you can fuggedabout it if you are on probation.

Nasty stuff in your credit history

You really should check your personal credit history at Equifax once or twice a year. And for sure if you are planning on buying or refinancing a home.

If your credit history is messy with late payments, unpaid collection items, or wrong information, you could be declined. Checking in advance gives you a chance to clean it up before you buy.

Last minute life changes

You'd be surprised how many people make significant changes in their lives just before they buy. And often it is after they have been pre-approved!

They think the lenders won't check things again I guess - but that is wrong.

  • Some people quit work and go back to school
  • Some people change jobs
  • Some people go from salaried to self employed
  • Some people dispute an item on a credit card and refuse to pay
  • Some people take out a new car loan or lease
The property fails an inspection or appraisal

Even if you are a perfect mortgage candidate, this does not guarantee you a mortgage no matter what. The property has to meet certain standards to satisfy your lender. There could be:

  • Structural issues with the house
  • Wiring and plumbing could be dangerous
  • Some combination of septic tank, well water and oil heating might worry certain lenders
  • The house could be a former grow operation for marijuana plants
  • The house could be in a very bad state of repair and need a lot of money to bring it up to speed

 

You don't have enough down payment

Yes the rules say 5% is the minimum down payment if your purchase price is less than $500,000, but this does not mean you will qualify for a mortgage just because you have the absolute minimum.

When you have less than 20% down payment, the maximum amortization period you can choose is 25 years - this means the monthly payments will be higher than you might expect - and your debt service ratios may be too high

You did not set aside $$ for closing costs

Closing costs add up - especially on higher priced homes and inside Toronto city limits. That's because land transfer taxes are higher, the more expensive your home, and because Toronto also charges a husky municipal land transfer tax.

Mortgage lenders have no sense of humor if you cannot prove you have set aside at least 1.5% of your purchase price to cover your closing costs.

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