Navigating the obstacles of mortgage approval
As the founder of Pyramine investment Inc., I am well aware of the challenges that arise when it comes to securing mortgage approvals for residential properties with 1 to 4 units, especially in light of the increasing interest rates. Switching lenders for better rates at renewals, qualifying for the full loan amount on purchases or refinances, and transitioning from cheaper to more expensive lenders can all pose significant hurdles.
Typically, lenders scrutinize personal income, rental income, and debts to determine whether a loan file meets their Gross Debt and Total Debt guidelines. If the numbers do not align, the loan amount may be reduced.
Fortunately, there are new programs available that can help overcome these approval hurdles. These programs allow lenders to surpass their typical Gross and Total debt guidelines and offer a range of options to suit various needs.
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One such option is Net-worth and Wealth-based Programs, which take into account non-real estate assets such as registered and non-registered investments, as well as cash. Some lenders lend dollar for dollar against net worth, while others add a percentage to income.
Extended-ratios Programs are also available, which approve loans with high ratios up to a certain amount and include a rate premium to the interest rate.
For self-employed individuals, some banks offer programs that allow the addition of a percentage of corporate net income or professional income to personal income to qualify for a loan.
Commercial Financing for Residential Properties is another alternative, where residential portfolios are viewed as a business, and the loan amount is supported based on this assessment. Additionally, there is a CMHC-insured option for adjacent properties that can form a combined number of legal units of 5 or more.
It is important to note that commercial options tend to cost more, and amortizations are usually shorter than 30 years, unless a CMHC option is considered. Moreover, options are limited for loan amounts below $1,000,000, and blanket mortgages are often required, which may restrict property flexibility. Therefore, it is advisable to consider commercial financing as a last resort after exhausting residential options.