For many first-time buyers affordability is a key issue as they look for a home of their own.  Fortunately, there are some ways to increase mortgage affordability.  Here are some tips to consider as you arrange financing: 

1. Look into a longer amortization.  Some lenders offer mortgages with amortizations that range up to 40 years, instead of the traditional 25-year amortization. 

With longer amortizations buyers can access more expensive properties, but they will also have to pay more in interest over the life of the mortgage.  Those opting for a longer amortization should plan to make lump sum payments down the road or increase their monthly payments (say, after receiving a salary increase), to lessen the amount of interest they pay throughout the life of their mortgage. 

2. Increase the size of your down payment.  A common way to come up with more cash for a down payment is to make use of the federal Home Buyers' Plan which allows qualifying purchasers can withdraw up to $20,000 each from their registered retirement savings plans (RRSPs) to buy or build a qualifying home without incurring tax penalties.  A mortgage broker has full details on the ins and outs of this program. 

Many mortgage options are available where the down payment can come from a properly documented gift. These options have recently been expanded to include a borrowed down payment, provided the home buyer qualifies based on the repayment terms of the loan.  If a home buyer has a loan with favorable repayment terms this will assist with the affordability calculations.

3. Revisit your current debts.  When applying for a mortgage, a lender will look at you total debt service ratio (TDS), or how much or your total income is going towards various types of debts, including car loans, credit cards, and other consumer loans.  A mortgage broker can advise on restructuring your current debt (by increasing the amortization and lowering payments on your car loan, for example), to ensure that your TDS ratio is acceptable to prospective lenders. 

4. Ask yourself if a rental suite is a good strategy for you.  For some homeowners, a rental suite allows them to generate added income which can be put towards the mortgage.  Note that many lenders require the suite to be legal before they will count any income it may generate.  Most importantly, ask yourself if you would be happy with the responsibilities of being a landlord – you’ll have to rigorously screen tenants, field repair requests, and in some cases track down overdue rent payments. 

5. Explore the option of a stated income mortgage.  For the self-employed, or salaried workers with a side income, so-called stated income mortgages can offer a way to have non-traditional sources of income counted during the mortgage application process.   It has only been recently that salaried individuals have had access to mortgage options at reasonable interest rates that allow borrowers with good credit to use income from other sources such as tips, business from home, and part-time work.  There will be some onus to prove that there is a reasonable income attributed to these other sources.  These types of mortgage options open the door for even more people to get into home ownership.

With a changing mortgage marketplace, a mortgage broker can offer valuable advice throughout the financing process on ways to boost affordability that suit your situation and personal goals. 

Finally, even though you may find yourself vying for a home with several other interested buyers, you may want to consider making your offer subject to a home inspection to ensure that the building and its systems are in sound working order. In addition if you are going to arrange a high-ratio insured mortgage (where the down payment is less than 20%) the property must meet the standards of the mortgage insurance company.  While a mortgage broker can prepare you to make an offer with confidence knowing that you are pre-approved, be aware that the property you buy still has to be acceptable to the lender and the mortgage insurer.

Talk to us to see how you can make the most of your housing dollar – We look forward to helping you throughout the mortgage process.