Is your car lease keeping you from buying a home?

Getting a mortgage can be difficult. Sometimes, to increase the odds of being approved or to qualify for a larger loan, prospective borrowers will pay down debts or eliminate existing loan obligations. Often, the process for doing so is simple, but there’s one type of financing that could trip up your efforts: a car lease. Here’s a breakdown of why — and what you can do to so avoid any snags.

What’s Your Debt-to-Income Ratio?

When you apply for a mortgage, a broker is going tally up all of the monthly payments you make on existing obligations, including credit cards, student loans, personal loans, car debts and other mortgages. That number gets measured against your income. This debt-to-income ratio helps determine your monthly mortgage payment. (So does your credit score. You can see where yours currently stands by reviewing your credit scores, regularly, on Equifax.ca.) Sounds easy and simple enough, right?

Well, the concept is, but if more than 25% of your income is already going towards debts, you may not be able buy as much home as you think. When you have other existing obligations, your ability to borrow can be reduced tremendously. That $300 per month car lease, for example, can be severely hampering your buying power.
Mortgage Tip: Remember, lenders will use only what you’re obligated to pay on existing loans in calculating your debt-to-income ratio. Choosing to pay more on your debts can be a good financial move, but mortgage lenders generally don’t give you any benefit for choosing to do so.

Why a Car Lease Can Trip You Up

Unlike an auto loan, a car lease can be trickier to workaround if you’re trying to pay off debt to qualify for a mortgage. Let’s say your credit report shows a car lease payment at $300 per month. There is a balance on the credit report of $6,000 due, which is the remainder of the lease. If you had a car loan with these exact terms, you could write a cheque to pay off the $6,000 obligation. Case closed.

Unfortunately, that option doesn’t apply to a car lease. You can give the car back and pay the $6,000 balance that is due. However, to qualify for a bigger mortgage, the lender will need to verify there is no obligation due for car. If you give the car back, the mortgage lender may ask what you’re going to drive instead — especially if there is a commute time from where you work to where you plan on residing.

Should you find yourself in this predicament, here are some options to consider.

• Call your car dealer. You can ask if they have any specific options for getting out of the lease. You’ll need to make it crystal clear that you must be out of the lease obligation completely.
• Transfer the lease to someone else. Your mortgage lender should be OK with this option as long as you can show and verify the obligation is completely out of your name and that there is no obligation associated with it. You can search online for options if your car dealer doesn’t have any transfer suggestions.
• Pay out. Give the car back, pay the balance due and either buy a new vehicle in cash, removing any debt-to-income ratio predicament or finance a car that has a lower monthly payment. The key here is that the payments need to be reduced or totally removed if you want to maximize your buying power.
• Consider your priorities. A great deal on your car lease may not matter if you are serious about buying a home, plain and simple. Ask yourself: Is the car more important than the house?

Paying Off Debt for a Mortgage

Paying off debt to qualify for a mortgage usually needs to be documented in the following ways.

• Money used to pay off the obligation cannot come from the reserve requirement your lender almost certainly has. Lenders usually want you to have at least three to four mortgage payments in the bank, called reserves, as a cushion when granting your loan request.
• You’ll need to produce a paper trail showing money leaving your bank account and going to the creditor to pay off debt or a provide copy of the canceled cheque to show you no longer owe the obligation.

All of these steps may seem unnecessary and overly repetitive, but they are a by-product of the current mortgage lending world. Remember, stringent underwriting requirements help to ensure lenders are making good loans and, more importantly, that you can actually afford the house you are looking to buy.

Are you serious about buying a home? Call or email me to review your options. Home ownership may be closer than you think.
Steven Porter is a licensed Mortgage Agent with Mortgage Architects, and Accredited Buyer Representative (ABR) and Seniors Real Estate Specialist. Steven can be reached at 1-905-875-2582, Email steven.porter@mtgarc.ca or apply online at www.1800Mortgages.ca

Why Reverse Mortgages Are Becoming So Popular Among Canadian Homeowners 55 And Over

What’s a reverse mortgage?

A reverse mortgage, like the CHIP Reverse Mortgage, is a special loan for homeowners 55+, that lets them borrow against the value of their home, without having to sell their home. And, unlike home equity loans for example, you never have to make a payment, until you choose to move or sell.

Why Are Reverse Mortgages so Popular?

After years of diligently paying their mortgages, many Canadians now have significant value locked up in their homes. But although they may be ‘house rich’, they often don’t have enough regular income to pay their other debts, cover monthly expenses or do important things like fix up their home. A reverse mortgage, like the CHIP Reverse Mortgage, lets homeowners access the value in their home, without having to make any regular payments, until they choose to sell or move.

How Does it Work?

With a CHIP Reverse Mortgage, you can receive up to 55% of the value of your home as cash. And, you can use the money for any purpose you wish – from paying off debts to financing home improvements to covering healthcare expenses. 

You can take your tax-free money as either a lump sum, regular monthly payments, or both. There are no payments to make as long as you or your spouse lives in your home. The principal and interest are only due when your home is either sold or you move out. Plus, you keep all the additional equity that accumulates in your home from the time you take out the CHIP Reverse Mortgage to the time you sell or move out.

For homeowners 55 or over, a reverse mortgage is often a better option than a traditional home equity line of credit (HELOC).

For more information on the how to unlock the value in your home, with a reverse mortgage, without having to move or sell, request Please send me your free, CHIP information guide

Why a CHIP Reverse Mortgage?

• Get $100,000, $200,000, $300,000 or more, depending upon the value of your home.
• Never make a payment until you choose to move or sell.
• Maintain complete ownership and control of your home. 
• Take your money as a lump sum, regular monthly payments, or both!
• Use the money anyway you see fit.

 Steven Porter is a licensed Mortgage Agent with Mortgage Architects and a Certified Reverse Mortgage Specialist. Contact Steven at 1-905-875-2582 or email at steven.porter@mtgarc.ca to discuss the freedom from having a reverse mortgage.