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How to get approved for a mortgage with student loans? (or other financial debt)

“Always pick your yard based on your Summer lifetstyle.”

~ KARL

February 8, 2018 - Karl Yeh

Wondering how your current debts, such as student loans or car loans, affect your ability to get pre-approved for a mortgage? How does an insured mortgage come into play if your debts prevent you from putting a 20% down payment? In this episode, we look at the impact of financial debts on mortgage pre-approval, what an insured mortgage is and how to get one. 

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Transcription:

Karl Yeh:

Hi everyone and welcome to another edition of Homebuyer's School.

Today I'm joined by Mujtaba Syed, Manager - Mobile Mortgage Specialist with TD Canada Trust. .

The question we're going to answer is:

How to get pre approved for a mortgage with a student loan or any other financial debt?

Mujtaba:         

Your current financial obligations definitely plays a role in your pre-approval. [00:00:30]

Any debts outstanding, it could be a student loan. It could be a car loan. It could be many other things.

Our pre-approval will actually help you kind of get an idea.

We'll breakdown what your payments are and we'll actually help you decide what's the perfect home for you.

If you're comfortable with all your payments and the mortgage payment that's the best place to be. You should be able to cover your current financial obligations and also the mortgage.

We'll also might even help you to decide, "Should I pay off those loans [00:01:00] first? Should I pay off my student loans or my car loan so I can get approved for a larger mortgage," to get you into that perfect dream home.

Once again these are just great questions to have with your specialist.

It's all about having that discussion and it should be open ended, to have that discussion and see exactly where you see yourself to be, it should be a long term goal.

It should be a long term plan and really have that discussion with your specialist and lender. [00:01:30] 

Karl Yeh:          

How much do financial debts really impact the ability to get pre approved for a mortgage?

Mujtaba:         

Like I said, it's a very, very important part. It could have a major impact on your pre-approval depending on the debts that you currently have your repayment history with that debt and many other things.

It's a very important step to kind of get an idea of your financial obligations.

You should also factor into your own monthly budget that you've worked out for yourself after or before you've seen a specialist to find out exactly how much you want to spend on [00:02:00] your mortgage or on your home so you can actually stay on top of your financial obligations.

Karl Yeh:          

I've heard a lot about this insured mortgage. Is it a different process? First of all, what is it?

What is an insured mortgage? Is it a different process in terms of getting a preapproval for it? Why would I want to get pre-approved for that?

Mujtaba:         

The process should still be the same. An insured mortgage is technically just what we call default insurance on our mortgage.

In Canada, [00:02:30] it's a legal obligation if you're putting less than 20% down, to have default insurance, which just makes the banks more comfortable in lending to you.

Without the default insurance you need to come with 20% down to buy a house, which sometimes could be a large amount.

It could actually take you a very long time to save up that, but with default insurance it's a benefit to some clients and to buyers.

It gets you into market sooner with a minimum of [00:03:00] 5% down and they get you out owning a home sooner.

Karl Yeh:          

Does that default insurance, or insured mortgage, is that part of your monthly payment plan or do you have to put it up front?

Mujtaba:         

It could be done either way.

We could definitely build it right into your mortgage so it's actually part of your payments or you could pay it up front.

A lender will definitely ask you those questions and say what meets your needs the best.

If you feel like you'd rather just pay it for all once than through your mortgage [00:03:30] payment they can definitely add it or if you feel like you'd rather just pay it up front you can definitely deal with that as well.

Pre-approval for a mortgage without a 20% down payment

Karl Yeh:          

Do you have a choice? Let's say I want to get pre approved and I don't have my 20%. I have generally good credit score and I meet all the criterias for let's say the bank or mortgage specialist. Can I say, "Hey I want to choose a insured mortgage versus ..." or it's only for special cases?

Mujtaba:         

Technically if you have less than 20% down it's the only way to technically purchase [00:04:00] a house is get that insured mortgage.

Once again, it is a benefit.

Look at it as a benefit, it is a default insurance and it gets you into a home sooner with that 5%.

Sometimes you need to sit down and talk and say, "I could save the 20%." But saving that 20% keeps you from getting into the market sooner where you've technically missed out.

You might have missed out on any appreciation in the market, how many more years of rent you might have had to pay to save up that.

Sometimes it doesn't make sense to save that 20% and get in sooner. [00:04:30]

Once again, it's a conversation to have with your specialist and to your lender to see what best fits your needs.

If you want to get in sooner, or you can rather wait and get in later. It just depends on your financial situation.

Karl Yeh:          

Do you have anything else to add in terms of insured mortgage or mortgages with financial debts?

Where to get an insured mortgage in Canada?

Mujtaba:         

Yeah, absolutely.

There's a lot of benefits in getting an insured mortgage, and you can actually go on their websites.

One of the insurance providers in Canda is called CMHC, which is called the Canadian Mortgage Housing Corporation. [00:05:00]

They have a very detailed benefit on their website. It also gives you a lot of helpful tips on their website about getting a home and buying a home.

The other one is called Genworth Insurance, and the other one is called Canada Guaranty.

They all provide very similar things, they might have a little different things here and there but it's also a benefit because there are certain guidelines that they can help you with.

If you're going through a hardship, most insurance companies have things built into their insured mortgages where they can [00:05:30] actually help you. 

They can help you with your financial obligation. They can work with you. They can do other things. They can actually be very helpful to have.

Karl Yeh:          

Perfect. Well thank you very much Mu. Thank you very much everyone for joining us and we'll catch you next time.

 

Your turn:

Let us know if you have additional mortgage questions or home buying questions that we can answer by submitting them in the comments section below. 

Homebuyer's School publishes new content weekly so subscribe or check back regularly for the latest information, strategies and tips from homebuying experts. 

About Mujtaba Syed:

Mujtaba is an experienced mobile mortgage specialist with a demonstrated history of working in the banking industry. Skilled in Negotiation, Commercial Lending, Banking, Sales, and Credit Analysis. Strong product management professional.

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