Higher Home Purchase Price with Net Worth Programs
Are you someone with a moderate income and significant net worth? Have you ever considered applying under a lender’s net worth program? Let’s dive deeply into how a lender’s net worth program can help you qualify for a higher home purchase price.
What is a Net Worth Program?
Lenders offer a net worth program that lets you qualify if you’re a borrower with some decent net worth.
The beauty of a net worth program is that you may qualify for higher mortgage debt ratios than you usually would be able to. Most lenders limit you to a GDS ratio of 39% and a TDS ratio of 44%. However, under a lender’s net worth program, you may be able to qualify for GDS and TDS ratios of 60% or more, depending on how much you’re putting down on the property that you’re buying.
How Much Can I Qualify to Borrow Under a Net Worth Program?
Not only can you qualify for elevated debt ratios, but you can also use your net worth to qualify to borrow even more.
How it works is that you use your income to see how much you can qualify. Then you can use your net worth to allow for even more. You can generally qualify for an extra dollar of mortgage funds for every dollar of net worth. For example, if you have $350,000 in net worth, you could qualify to borrow $350,000 in additional mortgage funds.
What Minimum Net Worth Do I Need to Qualify Under a Net Worth Program?
Different lenders have different minimums to qualify under a net worth program. Generally speaking, the lowest minimum is $150,000. Some lenders have a minimum net worth of $250,000 or greater.
The documents you must provide to prove your net worth depend on the lender. Most lenders are looking for the three most recent monthly statements or the most recent quarterly investment statement.
What Counts as Net Worth?
Generally, anything considered liquid assets can count towards net worth. This includes chequing accounts, savings accounts, non-registered accounts, RRSPs and TFSAs. The value is usually discounted by 30% for RRSPs to account for withholding taxes.
If you have equity in other properties, you can use it only if you have a signed purchase agreement to sell the property. If it’s not sold, you usually can’t use the equity.
You cannot use the funds to qualify for more under the net worth program if you use them toward your down payment. The reason is that the lender wants you to have them as a fallback in case you aren’t able to make your mortgage payments.
Assets you can’t typically use towards a lender’s net worth program include locked-in accounts and life insurance policies.
How the Canadian Mortgage App Can Help
With the Canadian Mortgage App, you can find out how much more you can afford.
Using the Purchase Calculator, as an example, if you have a net worth of at least $150,000, you can see how much you’d qualify for with a TDS ratio of 60%.
What are you waiting for? Download the Canadian Mortgage App today to try it out.