Leveraging Canadian Net Worth Mortgage Programs

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Canada Net Worth Mortgage Programs

Are you navigating the real estate market with a moderate income but a substantial net worth?

If so, have you explored the potential advantages of enrolling in a lender’s net worth program?

In this comprehensive guide, we will delve into the intricacies of how a net worth program can empower you to qualify for your home purchase.

Understanding Net Worth Programs

Lenders extend net worth programs to cater to borrowers with commendable net worth.

The allure of such programs lies in their ability to allow applicants to qualify for mortgage debt ratios beyond the conventional limits. While most lenders typically restrict borrowers to a Gross Debt Service (GDS) ratio of 39% and a Total Debt Service (TDS) ratio of 44%, net worth programs open the door to higher ratios, potentially reaching 60% or more.

The exact qualification depends on the amount invested in the property.

Determining Borrowing Capacity

Net worth programs not only enable elevated debt ratios but also leverage your net worth to access additional borrowing capacity.

The process involves assessing your income to establish a baseline qualification, and then your net worth comes into play, potentially allowing you to borrow even more.

As a general rule, you may qualify for an extra dollar of mortgage funds for every dollar of net worth.

For instance, if your net worth is $350,000, you could potentially qualify to borrow an additional $350,000 in mortgage funds.

Minimum Net Worth Requirements

Various lenders impose different minimum net worth requirements for eligibility in their net worth programs.

Typically, the lowest threshold is around $150,000, with some lenders setting the bar higher at $250,000 or more.

The documentation needed to substantiate your net worth varies among lenders, but most commonly, they require the three most recent monthly statements or the latest quarterly investment statement.

What Constitutes Net Worth?

Net worth, in the context of these programs, encompasses liquid assets.

This includes funds in chequing and savings accounts, non-registered accounts, Registered Retirement Savings Plans (RRSPs), and Tax-Free Savings Accounts (TFSAs). It’s important to note that the value of RRSPs is usually discounted by 30% to account for withholding taxes.

Other Real Estate – for Net Worth Purposes?

If you possess equity in other properties, you can leverage it, but only with a signed purchase agreement indicating the property’s impending sale.

Unsold equity cannot typically be used in the net worth calculation.

It’s crucial to understand that funds allocated for the down payment cannot be used to enhance your qualification under the net worth program. Lenders expect you to retain these funds as a safety net in case you encounter difficulties in meeting your mortgage obligations.

Assets such as locked-in accounts and life insurance policies are typically excluded from consideration in a lender’s net worth program.

It’s essential to align your assets with the lender’s criteria to maximize your eligibility under this advantageous program.

Conclusions and Further Thoughts

Contact Huber Mortgage to talk through your options!  Net worth programs aren’t spoken about much but are easy to access and include competitive interest rates.  Contact HERE.

Sincerely,

Michael

PS – One of my hobbies is blogging about mortgages, debt and government policy.  During the day I’m a MORTGAGE BROKER in Kelowna, BC!

Check out the Huber Mortgage Home Buyers Guide HERE

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