Decline Reason #1: Not enough income

Click Here to expand on Decline Reason #1

Decline Reason #2: Ineligible Qualifying Income

This is a frustrating one that many applicants have a tough time wrapping their heads around.  Some of the more common income types that tend to derail qualifications are self employment, part-time employment and 100% commission incomes.  It’s not that the type of income is restricted, but more so an issue of the length of time it was enacted.  For example, self employed income is totally acceptable, but only if you have a minimum established tenure of 2 years (and the same goes for 100% commission income types).  Here are some tips on how to overcome ineligible income types:

• Get a Co-Signer!  Perhaps you are in the first year of your new business or you have just taken on a lucrative commission payment structure, both of which may be trending in the right direction.  However, as you only have one year under your belt, your income is deemed ineligible.  The absolute minimum tenure for self employment, part-time, and 100% commission income is 2 years. As I mentioned in the prior blog (Decline Reason #1), you will likely require a co-signer if you are in this category. And if that’s the case, be aware that if all goes well and you carry on your job as per plan, you will hopefully graduate to independence once you accumulate your two years, thus making your income eligible! At this time you can then challenge the lender and provide income documents to verify that you can now service the mortgage based on your own merit (at which time you can then set free the co-signer!). Click Here to read more about the terms and conditions of being a co-signor.
• There are always exceptions to the rule!  The 2 year minimum is pretty much a hard rule, except for the following scenarios: 
  • Part-time income can be used if it is classified as Regular Part-Time.  This means that although your hours do not equate to a standard 40 hour cycle, a Regular Part Time status ensures that you earn a regular and consistent income which is looked upon more favourably by lenders.
  • Salary Component Commission incomes that feature a fixed salary component are regularly accepted by lenders, but the commission component is only factored in if there is a 2 year record of earned commissions, in which case a two year average would be used for qualification purposes. If you haven’t quite accumulated 2 years worth of commission earnings, you can certainly use the eligible base salary component of your income (if you have one).
  • Newly established self-employed applicants can also fall in the exception category, but only if they have transitioned to a business very similar (or related) to the employment they departed from.  For example, many engineers from Calgary’s oil and gas sector often switch from being payroll employees to self-employed contractors without even leaving their workplace (and vice versa).  Another recent file I worked on involved a massage therapist who recently transitioned from being a payroll employee and seamlessly changed to a self contracted therapist with a bulk of his patient list remaining intact while he also pursued other new patients and referral sources.  Instances like these are acceptable by lenders as they are regarded as low-risk employment transitions.

• Check in next week for Decline Reason #3: You have credit issues

“Extraordinary things are always hiding in places people never think to look“

The quote is by American writer, Jodi Picoult, and was probably not inspired by her experience of qualifying for a mortgage, but it definitely speaks to my topic.  These days mortgage approvals don’t come easy.  For starters, they start off as applications at which time the process of adjudication begins until eventually a decision is made to either; award an approval, request further information and/or clarity, or the most discouraging outcome possible- decline the application outright.  If you have experienced (or are currently experiencing) the latter, I’m writing this post to inform you that there is hope!  
Here is the first of a series of multiple posts focused around the topic of turning declines into approvals. Check in weekly as more tips and strategies will be revealed!

Decline Reason #1: Not enough income

This is probably the most common reason for a decline and likely the easiest one to troubleshoot.  Here are some effective countermeasures that could help you overcome a low qualification income:

• Provide more information!  Have open and exploratory conversations with your mortgage broker – reveal all.  An experienced mortgage broker will catapult your qualification to higher levels due to their knowledge and access to niche qualification programs.  An experienced mortgage broker will request additional (sometimes excessive) documents during the pre-approval stage for the sole purpose of developing an optimal application base to present to lenders.  More information equals more possibilities.  For example, rather than settling for a recent pay stub and an employment letter, a pro-active mortgage broker could further request your most recent 2 years (or even 3 years) of personal income tax documents to scan for patterns, trajectories, or even other unknown sources of income that you were simply unaware of.  The end result is often a higher mortgage qualification amount than if you had simply provided the bare minimum income verification.
• Get a Co-Signer!  Stop feeling ashamed and just ask your parents to co-sign.  I like to use the term “borrowing” a parent for a couple of years.  Almost every adult progresses and improves their earnings with time and there’s no reason to doubt that you will too!  Ask your mortgage broker how much extra income you actually require to qualify and if it’s not that much, you will likely be able to remove your parents from the mortgage (and set them free!) in a year or two.  So go ahead and ask your parents if you can “borrow” them for a couple of years.  By the way, co-signers are not limited to only mom and dad…you could add other family members, friends, or basically anyone with a pulse!  Click Here for more information on Co-Signing.
• Use your net worth to top up your purchasing power!  If you have substantial assets, some lenders will allow you the ability to top up your mortgage qualification amount proportional to the value of your assets.  The assets must be in liquid form (cash savings, investments, etc) and cannot include the down payment proceeds already reserved for the transaction.  Existing real estate equity is not an eligible liquid asset.  For example, let’s say you qualify for a $250,000 mortgage based on your income, but you also have a $300,000 retirement fund.  Under a net worth qualification guideline you could qualify for a $550,000 mortgage even though your income is only able to qualify for $250,000.  Click Here for more information on Networth Mortgage Qualification.
• Check in next week for Decline Reason #2: Ineligible Income