How a job loss affects your mortgage approval

money house - what if you lose your job
Mortgage Mark Herman’s money house

If you’ve been thinking about buying a house, you’ve probably considered how much you can afford in mortgage payments. Have you also thought about what would happen if you lost your source of income?

While the sudden loss of employment is always a possibility, the current uncertainty of our economy has made more people think about the stability of their income. Whether you’ve already made an offer on a home or you’ve just started looking, here is how job loss could affect your mortgage approval.

What role does employment play in mortgage approval?

In addition to ensuring you earn enough to afford a mortgage payment; mortgage lenders want to see that you have a history of consistent income and are likely to in the future. Consistent employment is the best way to demonstrate that.

To qualify for any mortgage, you’ll need proof of sufficient, reliable income. Your mortgage broker will walk you through the income documents your lender will need to verify you’re employed and earning enough income. So, if your employment situation is questionable, you may want to reconsider a home purchase until your employment is more secure.

Should you continue with your home purchase after you’ve lost your job?

What if you’ve already qualified for a mortgage, and your employment circumstances change? Simply put, you must tell your lender. Hiding that information might be considered fraud, and your lender will find out when they verify your information prior to closing.

If you’ve already gone through the approval process, then you know that your lender is looking for steady income and employment.

Here are some possible scenarios where you may be able to continue with your purchase:

  • If you secure another job right away and the job is in the same field as your previous employment. You will still have to requalify, and it may end up being for less than the original loan, but you may be able to continue with your home purchase. Be aware, if your new employer has a probationary period (usually three months), you might not be approved. Consult your broker.
  • If you have a co-signer on your mortgage, and that person earns enough to qualify on their own, you may be able to move forward. Be sure your co-signer is aware of your employment situation.
  • If you have other sources of income that do not come from employment, they may be considered. The key factors are the amount and consistency of the income. Income from retirement plans, rentals, investments, and even spousal or child support payments may be considered under the right circumstances.

Can you use your unemployment income when applying for a mortgage?

Generally, Employment Insurance income can’t be used to qualify for a mortgage. The exceptions for most financial institutions are seasonal workers or people with cyclical employment in industries such as fishing or construction. In this situation, you’ll be asked to show at least a two-year cycle of employment followed by Employment Insurance benefits.

However, it’s not the ideal situation and most lenders won’t be willing to approve your mortgage under those conditions.

What happens if you’re furloughed (temporary leave of absence)?

Not all job losses are permanent. As we’ve seen during the COVID-19 pandemic, many workers were put on temporary leave. If you’ve already been approved for a mortgage and are closing on a house, your lender might take a “wait-and-see” approach and delay the closing if you can demonstrate you’ve only been furloughed. In these cases, you’ll need a letter from your employer that has a return-to-work date on it. Keep in mind, if you don’t return to work before your closing date, your lender will likely cancel the approval and ask for a re-

submission later.

If you haven’t started the application process, it would be wise to wait until you are back to work for at least three months to demonstrate consistent employment.

Your credit score and debt servicing ratios may change because of lost income, which means you may no longer meet your lender’s qualifications for a mortgage. While it may not be possible, try to avoid accumulating debt or missing any payments while unemployed.

Talk to your mortgage broker.

 

“You don’t want to get locked into a mortgage you can’t afford.

You also don’t want to lose a deposit on a home because you lost your financing.

When trying to assess if it’s better to move forward or walk away, we should be your first call.”

Mortgage Mark Herman; Calgary Alberta Mortgage Broker

 

Why CoronaVirus = Lower Mortgage Rates

This link does a great job explaining why rates are coming down right now for mortgages.

https://www.cbc.ca/news/business/coronavirus-mortgage-rates-canada-1.5443071

Summary:

  • Events that could cause a stock market crash tend to also cause a “flee to safety” and the 5-year Canadian Mortgage Bond is that safety net.
  • When investors buy these bonds the demand goes up so the bonds pay less as everyone wants them.
  • The lower cost of the bond means a lower interest rate on your mortgage

This should be a short term blip, so if you are buying a home take advantage of it quickly

Mark Herman, top Calgary mortgage broker

Details of the FTHBI – First Time Home Buyer Incentive

Picuture of Calgary Tower in Alberta

The First-Time Home Buyer Incentive (FTHBI) officially starts on September 2, 2019. Introduced help first-time home buyers, the FTHBI will provide shared equity loans of 5% toward the down payment of a resale home, and 5% or 10% for newly-built homes.

The idea is that by boosting the size of buyers’ down payments, the FTHBI lowers the monthly mortgage payment and is some relief on the costs of home ownership.

Details of Qualification

To qualify for the FTHBI, home buyers must satisfy the following:

  • At least one person in the household must be a first-time home buyer, meaning they have not owned a home, or dwelled in a home owned by their spouse, over the last four years. (An exception is made for buyers who’ve had a breakdown of marriage or common-law relationship.)
  • Buyers must have a minimum of 5% down payment from “own resources” to qualify for a CMHC insured mortgage.
  • Buyers’ combined household income cannot exceed $120,000. This includes the income of any guarantors co-signing on the mortgage, as well as any rental income generated if part of the home is tenanted out.
  • The buyers’ Mortgage-to-Income Ratio (MTI) cannot exceed 4x their income, including the portion that’s provided by the FTHBI. This means the maximum down payment for a resale home cannot exceed 14.99%, and 9.99% for a new build.

Details of How It Works

The funds provided are registered as a second mortgage on title, and don’t incur interest.

This second mortgage must be paid back in full when the first insured mortgage matures at 25 years or when the home is sold, whichever comes first. Homeowners may pay it back as a lump sum early without penalty. (Details of how the value at the time of payout are yet to be released.)

Because it is a shared equity mortgage, the amount to be paid back fluctuates along with the value of the home over time: if the home’s assessed value rises, the loan repayment will increase by the same percent. However, the same will occur if the home has lost value by the time it is sold or the mortgage matures.

There are more details on the last post on savings including this chart below: https://markherman.ca/updates-to-cmhc-first-time-buyer-incentive-program/

Savings Over Time

This is a handy chart to see the savings on the monthly payment when using the program.

OVERALL

The program looks to be a helper for saving on payments and that is a great thing.

Mark Herman, Top& Best  Calgary Mortgage Broker

Why you don’t want your mortgage at your main bank

The Big-5 banks do not love you, they love your money, and now they can “trap” you in their mortgages if you fail the Stress Test.

Highlights of the last post are below. The post from January is here: https://markherman.ca/how-the-big-5-banks-trap-you-in-their-mortgages/

The new mortgage rules – called the B20 – allow the banks to renew you at almost any rate they want – or at least not a competitive one – if your credit, income, or debts should mean you can’t change banks.

 If your mortgage is at your main bank they can see:

  • your pay and income going into your accounts
  • debt balances on your credit report
  • what your credit score is
  • your debt payments
  • your home/ rental addresses so they can accurately guess at your home value.

ALL THIS MEANS they can calculate if you can pass the new “Stress Test.”

If you can’t pass it then they know you can’t change banks, are you are now totally locked into them for your renewal. They can renew you at POSTED RATES … 5.34%, not actual discounted rates they offer everyone, today (June 2019) about 2.99%.

The GOOD NEWS is broker banks do not do any of this … so having your mortgage at your main bank only helps them “grind you” later on. …. so how convenient is having your mortgage at your bank now?

Highlights of the article link below are:

Canada’s biggest banks are tightening their grip … as new rules designed to cut out risky lending make it harder for borrowers to switch lenders …  the country’s biggest five banks … are reporting higher rates of renewals by existing customers concerned they will not qualify for a mortgage with another bank.

“B-20 has created higher renewal rates for the big banks, driving volumes and goosing their growth rates,” said an analyst. “It’s had the unintended consequence of reducing competition.”

Royal Bank of Canada (RBC), said last month that mortgage renewal rates [are up …] due in part to the B-20 regulations.

Ron Butler said, “Even if they are up-to-date with their repayments, borrowers may find they don’t qualify with other lenders so they’re stuck with their bank at whatever rate it offers,” he said.

Senior Canadian bankers such as RBC … and TD … voiced their support for the new rules prior to their introduction, saying rising prices were a threat to Canada’s economy.

While analysts say RBC and TD are expected to benefit from higher-than-normal retention rates in 2019, not everyone is sure borrowers will benefit.

“The banks are becoming more sophisticated in targeting borrowers who would fail the stress test and they can charge them higher rates at renewal knowing they can’t move elsewhere,” Butler said.

Variable rates to hold steady for 2019

Here is the latest on changes to the Prime rate for variable mortgages. The news is good as Prime is now expected to stay the same for the balance of 2019!

Remember:

  1. Variable rates can be locked in at any time for what the rates are on the day you lock in on.
  2. The maximum payout fee for is 3 months of interest

Rate hike disappears over the horizon

Apr 22, 2019
from First National Financial LP

The likelihood of a Bank of Canada interest rate increase appears to be getting pushed further and further beyond the horizon.

The Bank is expected to remain on the sidelines again this week when it makes its scheduled rate announcement on Wednesday.

A recent survey by Reuters suggests economists have had a significant change of heart about the Bank’s plans.  Just last month forecasters were calling for quarter-point increase in the third quarter with another hike next year.  Now the betting is for no change until early 2020.  There is virtually no expectation there will any rate cut before the end of next year.

The findings put the Bank of Canada in line with the U.S. Federal Reserve and other major central banks.  World economies have hit a soft spot largely due to trade uncertainties between China and the United States.

This is good news for variables

Mark Herman, Top Calgary Mortgage Broker

Moving to YYC: How to buy ASAP

Moving to Calgary and Buying a Homes As Soon As Possible

This is a common question, and as usual, the way the banks / lenders want things done is exactly the opposite of what works in real life, for real people, like you.

You Want: To buy a home in Calgary, move the family in, get settled and then start the new job – RIGHT! That makes the most sense.

The Lenders want:

  • You to have 1 full-cycle payslip BEFORE then will fund your mortgage and
  • You to be completed the 90 day probation if you have a probationary clause in your new employment

Why?

PAYSLIP: The first full-cycle pay-slip – meaning 2 full weeks of pay – critically needs to match your employment letter / job offer at 40.00 hours; or whatever it is that you are guaranteed for pay. If it does not match, then your income is not guaranteed, and the lenders want to see guaranteed pay.

39.97 hours is not 40.00 hours; it means the 40 hours is not guaranteed and the lenders often decline to fund your mortgage.

PROBATION: In Alberta, you can be let go for no reason in the first 90 days of employment – even if you are NOT on probation. It does not matter if there is/not a reason, it is the law.

Obviously, if you just moved here, bought a home and are let go, the odds of you moving back are high. And the bank is left in the risky position of losing money on the home or making an early CMHC claim. Which is why they want to see either: NO probation, or a shortened & completed probation period, or a completed probation period.

Work-Arounds:

  • Workaround 1: We recommend and often see new employees specifically asking for no or short probation periods. You are taking the risk moving here, the employer is often willing to waive the probation – which can be the key to speeding a home purchase.
  • Workaround 2: Depending on how your math works out, you may be able to carry 2 mortgages at 1 time. There are 2nd Home Programs that can work for situations like this, but again, the math is different for everyone.

How to make the move as smooth as possible

The smoothest way to buy a home when relocating is to start the job first. Ask for the employer to waive or shorten the probation period. Then rent, stay with friends, or anything that works for the first 2 or 3 weeks. Then when you have a full-cycle pay slip you can buy a home that works for you and take possession as soon as possible is a much smoother transaction. Otherwise you are “trying to push a rope up a hill” and the bank’s don’t like that at all.

We see issues with people buying too soon all the time. Forcing the system often backfires on new home owners. The resulting brain damage is not worth trying to do the transaction backwards in the eyes of the banks.

Mark Herman; top Calgary Alberta Mortgage Broker, with best rates

RBC: Mortgage Mistakes

RBC made what I think are some some pretty serious – and costly – mistakes for their customers and it is too bad … for the customers!

My 2 favorite quotes from this article are:

“My husband and I both felt pretty robbed,” she said. “I feel … it was deceptive.”

and

“Based on his reading of it, the tone of the bank’s letter to affected customers is “probably an attempt to avoid litigation, because if they took the opposite position then people would be owed money,” he said, noting the letter falls well short of an apology or acceptance of responsibility.

“There is no particular offer … to compensate or provide a small amount of money as a token of having made a mistake,” he said.”

Here is the full article:

https://www.cbc.ca/news/business/rbc-mortgage-story-1.4995421?fbclid=IwAR28myrR_IiMPBhhblYs-gpv1IqtlQExaFv1ruatiWDUrAJwv08DisRPXJY

 

“Always get mortgage advice from a full-time, professional, mortgage broker”

Mortgage Mark Herman; Calgary, Alberta top rated mortgage broker.

Your Banking Relationship: They leverage your mortgage to rake in credit cards profits.

Below is part of an article where the bank is sad their mortgages are down 500% from last year. At the same time they made 16% more from ramming credit cards and Lines of Credits down their mortgage customer’s throats so it’s all okay in the end. For them… and how about for you?

The blue part shows that mortgage is the key to create what customers feel is a “relationship” with the bank so they can then sell you all their high margin products.

Broker lenders only “sell” 1 thing, mortgages, so consider separating your banking and your mortgage and get the best mortgage possible – through a broker lender.

 

“Having your mortgage at your bank is only convenient for them to rake it in off of your credit card fees.”

Mark Herman, top Calgary mortgage broker

 

Here is the article:

Bloomberg News, Doug Alexander, August 23, 2018 …

Canadian Imperial Bank of Commerce’s prediction of a mortgage slowdown has come true…

Despite the mortgage slowdown, CIBC posted a 16% jump in Canadian personal and commercial banking earnings due to a “significant” expansion  … and growth in credit cards and unsecured loans amid rising interest rates, Chief Financial Officer Kevin Glass said.

“Those would be the major offsets in terms of mortgage growth declining,” Glass said in a phone interview. “Mortgages are a key product for us — it’s very important from a client relationship perspective — but it’s not a high margin product, so if mortgages come off it has a far smaller impact than rate increases do, for instance.”