Let’s talk about the elephant in the room: Debt. Whether it be credit card debt, tax debt, previous mortgage debt, or student loans, you are not alone when it comes to the debt you may owe.
Debt can feel like a heavy weight on your shoulders. However, it doesn’t have to be.
When analyzing your mortgage, and making the decision to move forward with the purchase of your home, it is important to understand how your debt could impact your approval.
Let’s explore how different debts will be viewed in the eyes of your lender, when looking to purchase a home in Canada.
Lenders and Your Debt
When it comes to your debt, a lender will have various ways of working with it. Some may take the full amount of your debt and split it into monthly or bi-weekly payments, whereas others may accept monthly payments based on your cash flow situation.
Regardless of how they choose to accept your payments, each lender is different and will devise a plan that best suits your financial situation.
Each strain of debt has different impacts on your approval process. Your lender will work with you to ensure that your debt, depending on what you owe, is paid off as quickly and as efficiently as possible.
Here are some of the most common debts that affect your approval, and how lenders will navigate each of them.
1. Credit Card Debt
Credit card debt is one of the most common debts Canadians face. Depending on how much debt you have on your credit card, your lender will determine the best course of action for paying off your debt before you are eligible for approval. Whether your lump sum of debt is split into bi-weekly, monthly or quarterly payments, your lender will look for consistency with your payments. They will look at how often you have been contributing to paying off your debt, as well as how long the debt has been sitting in your account. There are various factors that contribute to your approval process when it comes to your credit card, all playing a key role in your approval.
Make sure that before you go to your lender to get approved, you have been making consistent and regular payments. Your lender will take this, along with your credit score, into consideration when processing your application.
2. Tax Debt
Any debt issued by the Canadian Revenue Agency (CRA) plays a crucial role in your approval process. If you owe previous taxes, a lender will typically ask you to clear this debt before they consider your pre-approval. As taxes are a key aspect of the Canadian economy, there is no wiggle room when it comes to this debt. Having tax debt will drastically impact your approval process.
3. Previous Mortgage Debt
Any mortgage debt is considered to be an installment amount that is paid over several years. The most common timeframe for mortgage debt to be paid is over a 25-year span, however, each lender and financial situation are different. Depending on what your previous mortgage agreement was, this debt should be secured and paid on a monthly basis.
You may be paying your mortgage for a previous home, and looking into purchasing a second property. The good news? You can do both!
Becoming approved for a second mortgage is possible, as long as you have the appropriate income to qualify.
4. Student Loans
Much like a mortgage, student loans are typically installment amounts to be paid over several years. When it comes to your approval for your mortgage, your lender will take a look into your student loans and determine how much of your monthly payments need to be made to your loans. It is encouraged to pay your student loans entirely, however, you may still be able to become approved for a mortgage with pending amounts on your account.
Make sure to take a peek into your interest rates, and make consistent payments in order to streamline your approval process with your lender.
Lean on Arise Mortgage
Getting pre-approved, and eventually approved for a mortgage does not need to depend on the status of your debts. While your lender may take into consideration your debts and factor that into your mortgage, nothing is stopping you from purchasing the home of your dreams.
With Arise Mortgage, we will work with you to find the best solution possible to help you become financially free when it comes to your previous debts and mortgage.
Get in touch with our team today, and discover what we can do for you.