It’s hard to believe that we are almost a full year into the pandemic. As we adapt to this new way of life, we’re all looking forward to the day when things return to normal.  Or at least, the new normal.  I’m sure I’m not the only one that’s looking forward to eating at a nice restaurant once again. The distribution of COVID vaccines seem to be taking longer than we had originally hoped.  Even when they are widely available, it’s going to be awhile before everyone becomes vaccinated. Either way, I remain positive that we’ll get out of this situation soon enough.

The situation is what it is, and we have no choice but to try to make the best of it. This is easier said than done for many unfortunately. Many people have been forced to accept a temporary reduction in income or layoff. Then there are those who have been forced to find work in a different field entirely.

The question is… how will this affect your ability to qualify for a mortgage?

Mortgage lenders (including banks) can only qualify you based on the current situation. If your income has been temporarily reduced, then it’s the reduced income that will be considered for qualification.  If you’ve been temporarily laid off, then your income can’t be considered at all unfortunately.

But why?  It’s only temporary!

While the pandemic seems to be dragging out, it’s just a matter of time before your income will be restored, or you return to work. Hopefully sooner than later. The problem is with the uncertainty around the timing.  It could be within a week, or it could be months.  Or, your employer might decide to keep you at the lower salary for longer than expected. If you ‘ve been laid off, then the company could end up folding, or they could end up scaling down and the temporary layoff could become permanent.  These are all possibilities, and this is how mortgage lenders think. They are not exactly the most positive people! As the future of the income is uncertain, they have to qualify you based on the situation as of today.  Even if you are already approved, lenders still have the right to reverse your approval at any time. If your income situation changes, then the circumstances around your approval have also changed, and the lender will need to re-review your file.

 

 

What Happens If You’ve Already Purchased And You No Longer Qualify?
Most mortgage lenders will want to ensure that your income is solid at the time of closing. If you have purchased a home unconditionally, and your income has been affected, then what happens?

This is an issue, but doesn’t necessarily mean that you’re out of luck. Your situation would be considered on a case by case basis. There are a few things that we will use to go to bat for you with the lender we have your approval with:

 

  • Time at employer
    If you’ve been with the same employer for 10 years, then this will appear a lot stronger than if you’ve been on the job for 6 months.

 

  • Line of work
    If you’re an engineer, then this will carry more weight than if you’re the hostess at a restaurant for example.

 

  • Earnings history
    Do you have a strong and consistent history of earnings consistent with your current level of income?

 

  • Reserve funds
    Are you putting every last penny into your down payment?  Or do you have funds in reserve?

 

If you are strong in all of the above areas, then we’ll make a case for you and press the lender to make an exception.  This is however no guarantee the lender will accept, and we may still have to look into other options for you.

Every situation can be a bit different.

If the lender we’re working with does not grant the exception, then will reach out to other lenders to see if we can find one to accept the situation as is. One of the benefits to dealing with a broker is that we work with many different mortgage lenders, so you have access to other options without having to re-apply.

 

 

Plan B – Alternative Lending Solutions
If none of the A lenders are willing to consider your file, then we would need to look at B lending options. A minimum 20% down payment will be required. The terms ‘A Lender’ and ‘B Lender’ do not have anything to do with the quality of the lender. B lenders are those who specialize in mortgages that don’t fit within the qualification guidelines of A lenders, and are therefore considered higher risk loans. For this reason, rates can be double that of an A lender…or even higher. On top of the higher rate, they will usually charge a fee equivalent to 1% of the mortgage amount, which would be paid at closing. Terms are generally kept to one year, as B lenders are meant to be temporary solutions.

B lenders will still need to qualify you based on income, but what if you have no income at all?

In these cases, we may need to look to getting your approval done through a private lender. These can be individuals, or small institutions who specialize in the highest risk loans. If there are no options with A or B lenders, then private lenders become the only option.  Rates can vary from 6-8%, depending on your situation. On top of the higher rate, there are fees of approximately 2%, however they can vary depending on your situation.  This would of course be a worst case scenario, and we would explore every option to get you qualified for the lowest rate available based on your specific situation. Should a private lender be the only mortgage option, then the only alternative would be to walk away from the purchase and forfeit your deposit.

The question is, which is the less expensive option?

It’s not just about the cost here either.  We would also need to look at the homes future value. If the real estate market continues to be as hot as it’s been, the rapid escalation in home values can be expected to continue, which means you could end up paying a much higher price to purchase a home a year from now. This is something that would also need to be taken into consideration.

 

How Confident Are You In Your Return Date?
If you have been temporarily laid off, or if you have had your income temporarily reduced, then it’s still possible that you could qualify based on your full income. However, you would need to have returned to work or have your income restored prior to your closing date.  The lender would generally want to see that you’ve received at least one paystub at your full income prior to closing.

 

What If Your Mortgage Is Coming Up For Renewal and You’ve Been Laid Off?
If you have a mortgage coming up for renewal, you can easily renew with the same lender without needing to re-qualify. They’ve already lent the money to you, so they see you as already approved.  As long as you have made your payments on time, then all you would need to do is sign the renewal documents, and you’re good to go. The only problem is that you’re not able to take advantage of potential lower rate options with other lenders. If switching to another lender, then a new mortgage application will be required, and you’ll need to qualify with the new lender based on current income and credit.