Priced Out of the Housing Market? Here Are 10 Ways New Buyers Can Qualify for More
Updated: May 17
Most first-time buyers I speak with, and many repeat buyers, are looking to qualify for a mortgage at the top of their affordability range. Today's higher home prices demand a larger budget, however, Canadian incomes in recent years have not risen accordingly.
New rules have also made it increasingly difficult to qualify for a mortgage, in particular the Stress Test, which presumes interest rates are 3x higher than actual. While this is an important stop-gap, the fact is that many Canadians are already renting for much more than a new mortgage payment. If only they could qualify to buy, they could be building home equity instead.
If you want to boost your home-buying budget, here are ten ways to qualify for more.
1. ADD A CO-BORROWER
The best co-borrower is someone who has reliable income, minimal debts, and good credit, but the most important is income because that is what will boost your numbers. A co-borrower is usually a family member or close friend but can be anyone with whom you have a trusting relationship. You will own this home together so your real estate lawyer will register the title according to your comfort level (50%/50% or 99%/1% ownership splits are common).
Co-borrower should not be confused with guarantor. A guarantor can help to supplement a lower credit score but will not help you qualify for more, which is why they can remain off title.
2. ASK FAMILY FOR HELP
It could be that you qualify for a larger mortgage amount but don't have enough saved for the required 5-20% downpayment. Often family wants to help. Even if cash is not readily available, or they don't want to liquidate higher-yield investments, refinancing a home or cottage could unlock equity at lower interest rates. Grandparents may want to gift an early inheritance, and a reverse mortgage could provide access to tax-free cash without affecting pension eligibility.
3. INCLUDE ALL INCOME SOURCES
In addition to your day job, if you have other income this should be included on your application. Common sources from employers include regular bonuses or commissions, or even a car allowance. Do you have a side-hustle or part-time job? Guaranteed hours or two years' tax slips are generally acceptable. If you have younger children, some lenders will accept the Child Canada Benefit as income as well. Discuss any and all income with your mortgage broker to see what could help your application.
4. LOOK FOR AN INCOME SUITE
If you're looking for a semi or detached home, consider broadening your search to include more than one unit. Income from existing or potential tenants may increase what you qualify for (in addition to the purchase price). You may not have envisioned being a landlord, but if your goal is to be mortgage-free faster, a property that has a built-in income stream is worth exploring. Ask your realtor about this option because multi-unit properties can be tough to find, and the unit needs a separate entrance, bathroom, and kitchen to qualify.
5. SAY GOOD-BYE TO YOUR CAR (FOR NOW)
It's not only house prices that have gone up; today's sophisticated cars come with relatively large monthly payments. If you have a car loan or lease on your credit bureau, removing it can usually increase what you qualify for. Fortunately it's often possible to transfer this monthly payment obligation to a family member, or use a third-party service such as Lease Busters to sell the vehicle. You can always get another car after you're a homeowner because it's much easier to qualify for dealer financing than for a mortgage.
6. RE-NEGOTIATE YOUR STUDENT LOAN
In addition to car payments, many Canadians also have student loans, and these loans tend to be larger in cities like Toronto where home prices are also higher. The NSLSC has many options for graduates to reduce monthly payments, usually by stretching out the time frame for the loan to be paid back. This could help you qualify for more on your mortgage application. A longer payment period could mean you pay more interest over the lifetime of your student loan, but extra lump-sum payments could offset this.
7. CONSIDER A CASH-BACK MORTGAGE
Do you have other loans, credit card debt, or owe money on a line of credit? A cash-back mortgage could be the perfect solution. Some lenders offer 1, 2, 3, 4, or even 5% cash back on the entire mortgage amount, which can be directed to pay off debts on closing day, thereby excluding those payments from your mortgage application. A cash-back mortgage costs more (to repay the additional funds) and comes with stricter penalties so make sure you understand the terms and conditions before signing.
8. MINIMIZE MAINTENANCE FEES
If a detached home is out of your price range it's important to remember that many lower-priced townhomes and condos come with maintenance fees. This monthly obligation will impact what you qualify for, so it helps to keep the cost as low as possible. Maintenance fees can exceed $1000/month if extras such as cable TV, lawn or snow maintenance are included, so keep this in mind when shopping with your realtor. The same logic goes for property taxes - a lower amount is better for your budget (and your wallet).
9. CHOOSE THE RIGHT LENDER
Today's home buyers have lots of options to choose from, including major banks, credit unions, monolines, alternative, and private lenders. A good mortgage broker will have access to all of these and can help you find the best solution to maximize your purchasing power. For example, if you have at least 20% downpayment some lenders can qualify you without the Stress Test. Or, if you're buying a condo, some lenders will count only 50% of the maintenance fee. Don't automatically assume your bank's policies are the ideal fit for your particular needs.
10. GET PREPOSITIONED, NOT PREAPPROVED
Many buyers go house hunting with a false sense of security after being preapproved. A preapproval does not guarantee a mortgage approval because lenders don't review documentation until after you sign a purchase agreement. Preapproval rate holds are also a marketing ploy because the best interest rates and special offers are saved for live mortgage applications.
The alternative - and the top way to qualify for more - is to get prepositioned. This is advanced underwriting for a comprehensive review of your mortgage options, before shopping with a realtor. Prepositioning also gives you more negotiating power, which is especially helpful in bidding wars.
MYTH BUSTERS: WHAT WON'T HELP YOU QUALIFY FOR MORE
You may be wondering about two options that are (in)conspicuously absent from this list: the Purchase Plus Improvements Program, and the First-Time Home Buyer Incentive Plan. These are both widely misunderstood and, contrary to popular belief, will not help you qualify for more. The PPI program can help you renovate a lower-priced home to improve its value, and the FTHBI will subsidize your monthly mortgage payments, but they are not really budget-boosters like the other items on this list.
FIND OUT WHAT YOU QUALIFY FOR
The best part of my job is telling people they're approved, and I would love that next phone call to be for you. Get prepositioned to find out what you really qualify for: book your complimentary 1x1 today.
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