How can I afford a higher Purchase Price?
Are you hoping to buy a home, but you aren’t qualifying to borrow as much mortgage money as you need? Before you put your dreams of homeownership on hold, there are options. Here are four ways to qualify for a higher home purchase price.
Bank of Mom and Dad
If you want to qualify for a higher purchase price, you could make a withdrawal from the bank of “mom and dad.” If you’re not familiar with this term, it’s just a fancy way of saying you’ll receive gift down payment funds from your parents.
These funds must be a gift and not a loan. It needs to be factored in as debt if they’re a loan, so it won’t really help you.
The funds from your parents must be from their own financial resources. From savings, investments and even a HELOC are fine. As long as it’s not borrowed money, such as an unsecured line of credit or personal loan, it should be fine.
Your parents will be required to sign a gift letter confirming it’s a gift. The lender will also want to see the money deposited into your bank account. The lender may ask to see your parent’s banking history as well.
Not everyone’s parents are in the financial position to provide a gift. If gifting down payment funds isn’t an option, another option to qualify for a higher purchase price can be to add a co-signer.
When someone is added as a co-signer, you can factor in their income in the mortgage application. If the co-signer has a decent income, it can help you qualify for a lot more. Just keep in mind that you also have to factor in the co-signer’s debts.
The ideal co-signer is someone who’s working a full-time job and earning a decent salary with little to no debt (maybe just the mortgage on their primary residence).
Usually, the co-signer is a parent, but it doesn’t have to be. It could be a sister, brother or even a friend.
Co-signing isn’t something to take lightly. When someone co-signs, it’s showing that they trust you. If anything were to happen and you were to miss payments, the co-signer would be responsible, and it could impact their credit score, so make sure you take it seriously.
If you’re making at least a 20% down payment on a home, you might consider a credit union. Provincially regulated credit unions don’t have to stress test you at the benchmark rate (currently 5.25%). Many credit unions will qualify you at their actual mortgage rate. This can help you qualify to borrow a lot more.
Just remember that this is only when putting 20% or more down. If you’re putting less than 20% down, unfortunately, you’re out of luck, and you’re subjected to the stress test.
Lastly, there are alternative lenders. If credit unions aren’t an option (maybe you have bruised credit), you might consider an alternative lender. This again is only an option if you’re putting 20% or more down. Be prepared to pay a higher rate and a lender fee of at least 1%. That being said, if the lender can get the job done, it might very well be worth it.
The Bottom Line
Not sure which option is right for you? Speak with one of our mortgage experts today to help you decide.