A Fresh Perspective
Part of what we do as mortgage brokers is explore options for clients.
Recently I worked with two families whose financing had been declined by their banks as the numbers didn’t work.
In both cases, the families had already sold their existing homes and written offers to purchase new homes. Both had done well on their sales and had significant equity to work with. They were shocked to learn they didn’t qualify for similar size mortgages.
Sometimes a fresh perspective makes all the difference.
When I reviewed the first application I took a look at what the outstanding debt. Since they bought their previous home they had purchased two vehicles and were carrying about $12,000.00 on an unsecured line of credit. The vehicle payments were $457 and $692 respectively.
For context here, your mortgage borrowing power decreases by about $100,000 for every $475 you have in payments for consumer credit (loans, credit lines, credit cards, etc).
Looking at this family’s situation, I suggested using some of the equity from the sale to pay off their truck loan and line of credit.
This reduced their monthly payments by $1,052 ($360 towards the credit line plus $692 for the truck) and meant that the numbers work for them to move forward with their purchase.
This was a small tweak but made all the difference.
My preference is that people put their equity back into a new purchase as opposed to paying off consumer debt. However, this decision needs to be made carefully by the clients as they are the ones ultimately responsible for paying the bills each month. In some cases this is the only way to qualify for a new mortgage.
The second family’s application involved a slightly different tweak.
When I calculated the funds they had available for their down payment and closing costs, it looked like they had $100,000 available for their down payment. The purchase price on their new home was $549,000.
We discussed increasing their down payment to $109,800 which is twenty per cent of the purchase price. They spoke to her parents, and the parents agreed to gift them $10,000 to make up the difference.
What this meant for the clients was that we were able to get an approval with a thirty-year amortization. With the increase in amortization and slight reduction in the mortgage amount (additional down payment + no default insurance fee), they qualified for the new mortgage they needed.
Again, my preference is to see clients stick with shorter amortizations whenever possible.
This family has chosen to have one parent stay at home while the children are young, so the smaller mortgage payments are a good solution for the short term. We talked about options for increasing their payments once the children are in school and the dad is back to work.
Each family and situation is different, and often we are able to look for creative options to help find the right mortgage. Sometimes a second set of eyes is all it takes.
