Mr. Gagnon is scratching his head, he doesn’t understand. His financial institution agrees to give him a pre-approval of only $290,000 when he aims for $500,000.
However, his credit report is impeccable. You can see it in this table.
I am Mr., a mortgage broker at Planipret. I contacted Charles-Antoine Boudreau so he could guide us on this.
To begin with, he noted that the current acceptance rate, the benchmark used by financial institutions to determine the maximum amount of a loan, is around 7%.
This number is meant to simulate rising interest rates to determine if the borrower can still make their mortgage payments. If he can’t do that, they can’t grant the loan as requested, so a low-value mortgage must be taken. Long ago, the approval rate was around 5%, they authorized higher loans. So mortgage lending rules have been tightened.
Mr. Gagnon’s case
After analyzing the file and doing the calculations, Mr. Boudreau predicted. So, for a $362,500 home, he must make a down payment of $72,500 or 20%.
Excluding the $6,000 car loan, he could get a $345,000 mortgage on a $431,250 home with a 20% down payment, or $86,250.
Opportunities opened up for Mr. Gagnon here.
1) Use your cash for:
- First, pay off the $6,000 car loan
- Then increase the down payment to buy at a higher value. However, he falls short of his $500,000 goal.
2) Transfer the auto loan to a family member.
3) Buy a house with his spouse.
4) Ask a relative to guarantee the loan.
5) Ask the parents to give a guarantee based on the equity in their home, usually called a collateral guarantee.
The first step to take when you want to take up a real estate project is how much you can borrow.
Receiving a disappointing response from your financial institution when you start the process can include backtracking, redoing plans, downsizing the home, etc.
To avoid this ordeal, it is best to conduct pre-qualification early so that one can check the amount one can get. Unlike pre-approval, where the financial institution conducts a more in-depth analysis of the file as it agrees to lend a certain amount, pre-qualification is intended to help evaluate financing options. It’s fast, informative and above all, it helps you not to imagine that you can build castles in Spain. In other words, it starts off on the right foot.
His credit file
- Annual salary: $92,000
- Credit Rating: 852
- Both credit cards have total limits of $15,000, with a balance of 0
- Line of credit: $10,000, balance 0
- Car loan: $137 every two weeks, renewed. ($6000)
- Down Payment: Between $40,000 and $50,000
- Other expenses: His rent
On the financial institutions website, you will find tools to determine your pre-qualification for a mortgage loan. Enter all the parameters of your personal situation and click on the calculate button. In a second, you will get the answer to your question.
Enlist the help of a mortgage broker to guide you through the financing process.