Buying a home is one of the most rewarding goals one could ever accomplish. Its interesting to see how many Canadians are willing to settle for a home, just for the sake of buying one. In markets like these, it seems as though everyone is outbidding one another on each and every home that comes up for sale. If youve been looking for home recently, you know exactly what Im talking about. What if there was a way to give you a slightly more competitive advantage? What if you could actually afford a little more than you anticipated? Sure, there are many things one can do to minimize their payment but what can one do to increase the amount they can qualify for?
How about choosing a fixed rate over a variable rate mortgage? While most of us are focused on having the lowest rate and mortgage payment possible, some of us may want the better home instead, you know, the one with the finished basement, fancy kitchen, or with the stunning landscape! I recently came across a client who was looking at placing an offer on a home for $630,000.00. When completing her mortgage application, she indicated that she would have much rather put an offer on the home across the street; it was a little more expensive ($645,000) and slightly above her budget, but this home came equipped with a finished basement and a separate entrance! After a detailed conversation, she appeared to be open to having a tenant occupy the basement. By utilizing the additional rental income of $800 a month and by using a fixed rate mortgage to help her qualify, we managed to complete her application and pre-approve her for a mortgage. So how can a higher rate increase your ability to qualify for a higher mortgage? In most cases, lenders will qualify a borrower choosing a 5yr variable rate (currently around 2.35%) with a benchmark rate (currently at 4.64%). This kind of spread can quickly minimize your chance to qualify for the home you want. While those using a 5yr fixed rate (currently around 2.74%) to qualify, have a better chance of qualifying for a higher priced home.
On another note buying a home with a tenant will also allow you to use the rental income you earn to qualify for your mortgage. Lenders have their own formulas to determine how much income you could actually use (50, 80 or even 100%). This is a great option for first time homebuyers trying to get into a market that seems impossible to enter.
So, before you decide to throw in the towel because you dont quite think you could afford the home you want, just ask yourself if having this home with a tenant and, or, with a fixed rate is worth considering? These options may provide the tools you need to become the proud owner of your new home.