When it comes to applying for a mortgage in Canada, your financial situation is a key factor that lenders will consider. This includes not only your income and savings but also your debts and expenses. If you are considering leasing a car and also applying for a mortgage, you may be wondering if your car lease will affect your mortgage application. The short answer is that it can, as car leases are considered a form of debt that must be taken into account when evaluating your financial situation. However, there are a few key points to consider when it comes to how car leases can impact your mortgage application in Canada.
How car leases are considered in a mortgage application
When evaluating your mortgage application, lenders in Canada use a debt-to-income ratio (DTI) to determine your ability to take on additional debt, such as a mortgage. This ratio is calculated by dividing your total monthly debt payments (including your car lease) by your gross monthly income. If your DTI is too high, it may be difficult to get approved for a mortgage, as it could be seen as an increased risk for the lender.
For example, let’s say that you have a gross monthly income of $5,000 and your total monthly debt payments (including your car lease) are $2,000. Your DTI would be 40% ($2,000 / $5,000 = .4), which may be considered high by some mortgage lenders. In general, a DTI of 43% or lower is considered to be a good benchmark for mortgage approval, although this can vary from lender to lender.
Strategies for mitigating the impact of a car lease on a mortgage application
If you are concerned about how a car lease will impact your mortgage application, there are a few strategies you can consider to mitigate this impact. One option is to make a larger down payment on your mortgage, as this can help reduce your overall DTI and make you a more attractive borrower. For example, if you are able to put down a 20% down payment on a $300,000 mortgage, your DTI will be lower than if you put down a 5% down payment on the same mortgage.
Another option is to try and pay off as much of your car lease as possible before applying for a mortgage. This will reduce your monthly debt payments and lower your DTI, making it more likely that you will be approved for a mortgage. For example, if you are able to pay off $500 of your monthly car lease payment before applying for a mortgage, your DTI would be lower than if you included the full $500 in your debt payments.
Variation in lender policies regarding car leases
It’s worth noting that some mortgage lenders in Canada may be more forgiving of car leases than others. Some lenders may consider car leases to be less risky than other forms of debt, such as credit card debt, and may be more willing to overlook a higher DTI as a result. However, this can vary from lender to lender, so it’s important to shop around and compare offers to find the best mortgage option for your situation.
In summary, a car lease can impact your mortgage application in Canada by increasing your debt-to-income ratio and potentially making it more difficult to get approved for a mortgage. However, there are strategies you can consider to mitigate this impact, such as making a larger down payment on your mortgage or paying off as much of your car lease as possible before applying for a mortgage. It’s also worth considering the policies of different mortgage lenders, as some may be more forgiving of car leases than others. By understanding how car leases are considered in a mortgage application and taking steps to reduce your DTI, you can increase your chances of getting approved for a mortgage in Canada.
Stephen Johns is the founder of CarleaseCanada.ca A website that allows families to travel inexpensive or free. In 2014, when he was faced with an expense-intensive Lake Tahoe extended family reunion He embarked on his first adventure in the world of rewards on credit cards. The following summer, using a handful of carefully-planned credit card applications, he had used 15000 Ottawa Rapid Rewards points to pay for eight tickets to cross-country flights. He founded Points With a Crew to assist others to realize that due to rewards from credit cards your next family trip could be closer than they thought.