With our variety of lender options and policies we are able to help our clients who are divorcing with a couple of unique programs and strategies.
We can help you with your down payment:
*The government of Canada has set guidelines for lenders to allow a maximum refinance of only 80% of the value of your home. However, in the case of divorce mortgages the government has allowed special guidelines to help you.
*Unfortunately in many divorce situations, if we are limited to an 80% loan to value refinance, the home does not have enough equity to equally repay one party their part of the home equity while allowing the other to keep the equity and remain in the home.
*For example, assuming the divorcing couple has no other assets to deal with, their home would have to have a loan to value of 60% or less in order to split the equity equally. In real numbers, if they had a $300 000 home, their current mortgage would have to be $180 000 or less in order to allow the clients an equitable split. In this case the client who is keeping the home would retain the $60 000 in equity and would then obtain a new mortgage for $240 000 in order to repay the other party the $60 000 in cash.
*The good news is we have a unique solution and exemption from the government backed mortgage insurers to treat divorce mortgages and buyouts as purchases. By treating these mortgages as purchases instead of refinances we are able to approve our divorce mortgage clients under the same requirements as if they were purchasing the home from the previous spouse. More specifically, this special exemption allows us to use the home equity they receive in the separation as the down payment. As a result of this unique program, for divorce mortgages in Canada we are able to use as little as 5% down payment in the form of home equity for the home buyout.
*For example assuming our clients own a $300 000 home and they have a mortgage of $270 000, with $30 000 in total equity. We are able to use the split of that equity: $15 000 for the down payment for the person who is keeping the house, while the other party receives the $15 000 in cash as a buyout through the new mortgage financing.
This solution often results in a great win – win option for both parties, it allows one party to keep the home while the other receives their share of the equity in the form of a spousal buyout.
We can help you qualify for a larger mortgage:
To do this we use the Income deduction strategy to reduce the impact of the support payments you are making.
*The traditional method of determining the size of a mortgage a client can qualify for relies predominantly upon a calculation called Total Debt Service or TDS. This number is a measure of all of a client’s new home payments in addition to other debt payments relative to their gross personal income. For example if a client has a monthly gross income of $6000 and monthly debt obligations of $2000, their TDS is 2000/6000 = 33%. The government through CMHC allows clients to have a TDS of up to 42% to 44%. As you can see if a client adds a monthly support payment of $1000 to their TDS, their debt ratio would be 3000/6000 = 50% and they would be well over the maximum allowable and would unfortunately not qualify.
*So, the question is “how do we fix this qualifying challenge when we are funding post divorce mortgages for our clients?” Through several of our lending relationships we are able to turn the tables in our client’s favour through using a lender exception when we calculate your TDS. Instead of us counting the support payments as a debt, we are able to deduct them from your income. This makes a very big difference in terms of how much mortgage you are able to qualify for.
*In the above scenario of $6000 in monthly income and $2000 in debt obligations, an addition of $1000 in support payment will move the TDS from qualifying for a mortgage at 33% to not having a chance at qualifying for a mortgage at 50% TDS. However if instead we turn the tables and use the income deduction strategy to deduct the support payments from your income our debt ratio becomes 40% and we easily qualify.
*This benefit is easily seen when we look at how much more mortgage a client is able to qualify for if we use the income deduction strategy. In the above example when support was considered a liability, our client would qualify for a $250 000 mortgage. However, when we use the income deduction strategy, they would qualify for a $300 000 mortgage. This is a difference of $50 000 in the amount of a home our client can purchase for their family.
We have had many years of experience working with divorced mortgage clients and understand your unique needs and also which lenders have policies that are favourable to your situation. It is important to understand that not every lender will use the income deduction strategy, and as we have shown this can be the difference between you qualifying for your new home or not. We are here to help, please connect with us via phone, contact form or online application.