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Mar 29, 2021 | Mortgages | 0 comments

What increases or decreases your borrowing power?

Mortgages | 0 comments

  A mortgage pre-qualification is your first step when applying for a mortgage loan. It gives you an estimate of your maximum home purchase price and it is calculated based on your personal financial information. Essentially, a mortgage prequalification looks at your income and your debt. Outside of the income from your business or your job there are a few other income times that can help increase your borrowing power. There are also some debts that really take away from your borrowing power. Let’s take a peek.

Increases in your borrowing power

Child Tax Benefit

Let us say you receive about $1,045 per month for Child Benefits; this amount will increase your borrowing power by approximately $60,000. This means that you can purchase a home about $60,000 more expensive if we use a lender that will accept child tax benefit on your income profile. Keep in mind, not every lender accepts every income type, so it might be a good idea to ask your broker to find a lender that maximizes your purchasing power by making use of multiple income types.

Legal Suites

Purchasing a home with a legal suite increases borrowing power by $70,000 – $80,000 in most cases. The financial gain you receive from renting out an area of your home can be beneficial because it adds to your income. If you’re considering purchasing a property with a suite, in SOME cases an illegal suite may also help you qualify for an increase in purchase price. Legal suites are certainly more widely acceptable and will be more likely to help increase your overall borrowing power. Bonus: A suite can also increase the value of your property when you go to sell as it opens up the property to a larger group of potential buyers.

decreases in borrowing power for your calgary mortgages

Decreases in your borrowing power

Vehicle Payments

Let us say your vehicle payment is $700 per month; this amount will reduce your borrowing power by $50,000. A large monthly car loan like this decreases the amount of income you have left to pay your mortgage each month. Bonus Tip: It is MUCH easier to obtain a car loan than it is to obtain a mortgage. Consider purchasing your home first and once that transaction is closed, then consider adding a car loan to your profile. Timing is everything with car loans!


Line of Credit & Credit Card Debt

Lenders are required to calculate line of credit and credit card debt as if the client was obligated to pay 3% of the current balance each month. For example, if you have a credit card with a balance of $10,000, lenders need to calculate a payment of $300/month when deciding how much you can borrow, (even though your minimum payment is likely only $80/month). Working with a mortgage professional that has a firm understanding of how to restructure debt can greatly benefit your mortgage file. Rolling Credit Cards or Lines of Credit in to “Term Loans” or considering products like a cash back mortgage can help to decrease the perceived monthly obligations and add thousands of dollars to your maximum borrowing power.



Condos vs. Single Family Homes

When you’re considering a condo, not that each $100 in required condo fees reduces borrowing power by about $10,000. Simply put, your available income to pay the mortgage is reduced by condo fees. The more significant the condo fee, the bigger the impact. Some clients are searching for condos, so this is great. Other clients are right on the cusp of purchasing a condo or a duplex. In Calgary, an example would be a purchase price of $300,000. If the client qualifies for a $300,000 purchase price, but the unit requires monthly condo fees of $300 per month, the borrowing power of the client is reduced to $270,000. If the client opts for a duplex, without condo fees, their purchasing power would remain at $300,000.

Final Thoughts

To get a general idea on what it takes to purchase a home in Calgary, we have broken it down for you in this table

Home Price

Minimum Down Payment

Required Income

























Overall, it’s important that when you’re looking at a mortgage qualification you’re working with a professional that is considering all of your alternatives to provide the best purchase price, mortgage rate and product for your individual situation.

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