Getting a Mortgage Today Has Strict Criteria

A  Rental Can Mean Extra Income and Build Long-Term Wealth

But be Sure You Meet the Criteria to Get a Mortgage

A couple of Ted’s friends were discussing owning rental property. As union truck drivers they argued that investing in a good rental property can provide a little extra income each year after expenses and help build some wealth long term to supplement their retirement income.

The idea grew in Ted’s mind and after six months he decided to talk to a friend who sold real estate. The salesperson put Ted in touch with a mortgage agent to see how he could financially qualify to buy an investment property. The mortgage agent reviewed his employment history, income, debts and pulled a credit report. All was good.

After seeing a few rental properties in his price range Ted found a real jewel: a triplex that was well kept and updated. Best of all, after expenses and mortgage, it gave him about $500 per month, for an additional income of $6,000 per year. He went for it. Now all he had to do was to secure the mortgage. 

Again he met with the mortgage agent and, among other docs, he gave her the additional three requirements: 2 pay stubs, 2 year’s tax notices of assessment, and a letter of employment from the company he worked for. As required by the lender, the employer’s letter confirmed that Ted worked 40 to 44 hours per week and continually worked for the company for the past 24 months. The hours stated constituted full time employment.

Would the Employer Guarantee the Hours of Employment?

As the paperwork seemed in order, the lender approved the mortgage and Ted removed the financing condition in the offer. The lender then did what all lenders do; they called the employer to:

  • Confirm the hours worked in the letter and
  • To see if they would guarantee the same hours of employment into the future.

Lenders’ Strict Lending Rules Can Overturn a Commitment

The company did confirm that Ted had two years proof of income; he, however, had taken six months off due to a request for a voluntary leave of absence concerning a family emergency. The consequence:

  • The employment letter did not reflect the leave and so the lender no longer considered Ted’s employment for the past two-year period as continuous.
  • As well, given the nature of the job, the employer would not guarantee the same number of hours into the future.

This resulted in the lender turning down their commitment to lend Ted the mortgage.

In an effort to fund the purchase, the mortgage agent looked to another lender. Now because the buyer increased his credit card debt with a vacation, his credit was negatively affected and no longer qualified for the mortgage needed. To obtain a release from the firm sale, Ted lost his deposit to the seller.

Eugene Pilato

Eugene Pilato

Broker of Record
CENTURY 21 Today Realty Ltd., Brokerage*
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