I hate to sound like an alarmist but as we get to the end of 2020, I am noticing a trend among the hourly-wage and self-employed borrowers that will definitely impact their mortgageability next year. What do I mean by mortgageability? Well it’s a term I coined to describe how much mortgage you can get, and how easy it will be to get it.
Let me explain using a real-world scenario.
Last night I spoke to Barry, an elevator technician, and his amazing girlfriend Elaine. Elaine works full-time, and from home, for a massive corporation and has had no Covid-related income impacts. Barry, on the other hand, is a full-time hourly-wage elevator technician, and guess what? They (usually) make really good money.
In 2019, Barry’s T4 was $122,500.
In 2018, his T4 was $121,450.
His 2020 year to date? $91,500. Ouch!
But! Here’s the thing.
Barry’s 2020 numbers do not have to come into play with every lender. Meaning, some lenders will still use the 2 year average because they know 2020 has been a bad year. However, they will only do so until the 2020 T4 comes out. So? What does that mean? Barry should either buy a property today using his 2 year average if he wants to maximize how much property he can qualify for.
How much of a difference is it?
Glad you asked. The difference is staggering. An income of $120,00 using 4.79% amortization, with 20% down, and 30-year amortization, will qualify you for a mortgage of $657,000 with borrowing ratios at 39/44.
An income of $90,000 will qualify you for $470,000.
Those numbers are so far apart I had to check them three times but it’s true. If every $1 qualifies for $5.45 mortgage, then, yes, a $30,000 dip in income does translate to $187,000 less in mortgageability.
What if Barry is self-employed?
Self-employed borrowers do not have to finalize their taxes until sometime first to second quarter of 2021. So, Barry, the self-employed elevator technician does have a little bit more time to make a mortgage decision. However the lenders are a little more restrictive with self-employed people anyways so if you are Barry, you should prepare all of your financial documents and have them all at the ready.
Some people will say yeah but Jake! How can you push the agenda that Barry should borrow $657,000 when he’s made less money this year? My answer to that is simple. What has this year been if not the most f*%#ed up year in our human history? Do we expect Barry to make less money next year? Is Barry making less money per hour? Yes, no and no. Therefore obviously we have all of the mortgage planning discussions I always do with clients, especially ones like Barry.
If you’re in this boat, shoot me a line and let’s explore your options. Whether you are refinancing, renewing or purchasing, December 2020 is the time to get going.