Is It Possible to Get a House Mortgage If I Have a Lot of Debt?
Owning a home is the number one financial goal for many Canadians. Many Canadians, on the other side, have a large amount of debt, including credit card debt. As a result, an often asked question here in Canada is “Is it possible to get a house mortgage if I have a lot of debt?“.
The answer depends on how high your gross debt service ratio is. In the process of reviewing your mortgage application, bank or mortgage lender will determine your gross debt service ratio or, in other words, your ability to make monthly payments on your debts, and decide if you are eligible for the mortgage.
For example, based on your income, the bank may determine that you can afford to pay $1,000 per month in debt payments. That means that if you have no other debt, you can afford a mortgage with $1,000 per month in payments; however, if you are already paying $600 per month towards your credit card debts, you will only qualify for a mortgage with a monthly payment of $400 per month.
Obviously, unless you have a large down payment, it is difficult to find a house in most places in Canada that only carries a $400 per month mortgage payment.
If you want to buy a house but your debts are too high, you must first get out of debt, and then save for a down payment. Only once your gross debt service ratio is improved and you have a down payment it does make sense to purchase a house. How can you achieve that?
First, try to pay off your debts on your own: cut your expenses to free up cash and then use that money to repay your debt.
If this method does not work for you because your debts are too high, you might consider making a consumer proposal to your creditors as a way of dealing with your debts. By negotiating with your creditors you can get some of your debts discharged and begin saving for your new home.
Finally, if consumer proposal is not an option in your situation, filing personal bankruptcy may be necessary.
Obviously, filing a consumer proposal or bankruptcy will put a note on your credit report that you were not able to pay your debts in full, which will make it harder to qualify for a mortgage; however, you will have no debts anymore, which means that you can start saving for a down payment and look forward to qualifying for a mortgage in the future.
To conclude, in most cases the answer to the question “Is it possible to get a house mortgage if I have a lot of debt?”is – no. You will most likely need to take some action to improve your gross debt service ratio and to make it happen for you. Our experienced Licensed Insolvency Trustees can help you find the alternative that best fits your unique situation. Please call for a free consultation today.