# How to get approved with low income



## KaeJS

Hello everyone,

I have been thinking about purchasing a condo to rent out.
I would like to purchase one around the $220,000 price range, and I'm looking at putting a $25-$30k downpayment. I know that if I had the 20% (or did they change it to 25%?) downpayment I could escape the CMHC fees, but that isnt going to happen 

My issue is that my income is low at $30,000. However, even if the tenant did not pay any rent, I would still be able to cover the mortgage for up to 2 years by myself with money that I have available to me. (yes, the-royal-mail, my "Tiered Savings" )

I have used TD Banks "How much can you afford?" calculator on their website and it says that I can only afford a mortgage of $155,000 with a monthly mortgage payment of $599 ($599 is 27% of my *after tax *income per month). I heard banks dont like to give mortgage payments more than 1/3 of your income. Can anyone confirm this?

I would like to be approved to borrow $200k with a 30k/year salary, and with $30k down over a 30 year amortization period.

How can I do this without getting another job just to "beef up" my income?
If I had $10k in a savings account after the downpayment, would they take that into consideration?

Thanks everyone.
I have never bought property before so I am somewhat new to this. Anything and everything is appreciated.


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## marina628

The issue is probably the condo fees.If you buy a condo and have a tenant sign a lease they will take 50% of the rental income into consideration to approve you.Also you would most definitely need ZERO debt for a mortgage on $30,000 a year.


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## marina628

You need to show $40,000 a year income,no debts and no condo fees for these numbers to work.So unless you can rent for $1600 a month and it is a freehold I do not think it can work.


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## financialnoob

I wish you all the best. We're just looking to buy our first place, a small condo as well. It's been pretty crazy trying to go through all the numbers and rules and regulations and calculations. My life is an Excel sheet lately 

Anyways, regarding the 27% after-tax income, I think this article explains the GDS/TDS ratios well. 

http://m.theglobeandmail.com/globe-investor/personal-finance/mortgages/the-missing-pieces-in-banks-real-estate-math/article1770868/?service=mobile



> The first is called the gross debt service ratio, or GDS. The rule is that monthly housing costs, usually defined as mortgage payments (combined principal and interest) plus property taxes and heating, should not exceed 32 per cent of monthly household income before taxes.
> 
> The second measure is called the total debt service ratio, or TDS, and it compares monthly income to housing costs plus payments on lines of credit, credit cards and other debt. Housing costs plus debt payments shouldn’t exceed 40 per cent of income.
> 
> “I’m 23 years in the business and we haven’t really adjusted the debt ratios,” said John Turner, national director of specialized lending at Bank of Montreal. “They’re tried-and-true guidelines that are proven to work for us in the industry.”
> 
> The 32-per-cent GDS limit and 40-per-cent TDS limits are definitive enough that Canada Mortgage and Housing Corp., a federal government agency, uses them on its website to help home buyers see if they’re financially ready to buy a home. But there are some variations.
> 
> Mr. Turner said some lenders will factor 50 per cent of condo fees into the calculation for the GDS, while solid borrowers might be allowed to take their TDS as high as 42 per cent.


Marina has made some good points (I didn't know about the tenant income counting for 50%, good to know, thank you!). But what about a co-signer like a parent? Is that an option? Is there potential for salary increases in the next year or so that might improve things? 

Having a chunk of money saved up is good, but we're talking about a 30-year mortgage so enough cash to cover 2 or 3 years worth of payments probably won't mean much to the bank.

Alternatively, you could get a smaller place. They're hard to find and you might have to make some compromises on your first place, but I have found some while perusing the market for under $190K. With $30K down, you're pretty close to the ballpark.


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## kubatron

With less than 20% down, you'll have to sign a clause / agreement that the property will be owner occupied. Therefore, since you need the rental income to qualify, you can't do it. Why do you have to spend what you cannot afford? On $30K, if your tenant leaves suddenly, you're squeezed. Why not spend up to the max you can afford and buy something cheaper until you make more money?

The both of you need to contact a mortgage person, be it me or someone you know. Affordability can be stretched, but it depends which lenders you go to. I.E. some don't allow for 44% gds and tds, some do.

Also, with 20% down, some still allow 40-year amortizations.

PM me if you want more info.


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## the-royal-mail

Yeah I dunno about this. When I bought my condo I had annual income of $46K and the most they would approve me for is $175K. The banks have their formula they use to calculate how much you can be approved for and they stick to it. It's a good safeguard to ensure that people do not take on bigger mortgages than they can afford. In your case, sorry Kae, but you are aiming too high to want a $220K mortgage with the income you have. Yes, you could take on another job to increase your income and thus eligibility. I think TD has a website mortgage calculator where you can play around with numbers. 

A $220K mortgage is a significant amout of money. I don't think the banks will give out a mortgage for that amount unless you have at least $60K in income. If you need to work two jobs to make this work are you really gaining anything?

I don't wish tenants on anybody.


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## kubatron

Just an FYI, the easiest way to calculate the affordability:

TDS (Total Debt Servicing) cannot exceed 44%

You take income / 12 months divided by:

monthly payments on all debt + mortgage payments at qualifying rate + 50% of maintenance + property taxes / m

So example:

$40,000 / 12 = $3333 / m

divided by

let's say $300 on all debts + $850 on a mortgage + $250 maintenance + $200 taxes.

=48% -therefore don't qualify.


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## Barwelle

kubatron said:


> With less than 20% down, you'll have to sign a clause / agreement that the property will be owner occupied. Therefore, since you need the rental income to qualify, you can't do it. Why do you have to spend what you cannot afford? On $30K, if your tenant leaves suddenly, you're squeezed. Why not spend up to the max you can afford and buy something cheaper until you make more money?


I've heard that before too, that you can only pay a down payment under 20% if it's your principal residence.

Can OP purchase a 2+ bedroom condo, live in one room, rent out the rest, and count that as income to reduce their ratios?


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## kubatron

No. In a single-family dwelling, the great majority of lenders won't include rent-from-room(s) as income supporting. Only a duplex could allow that. Most lenders won't even allow for a single-family with a "nanny suite" or "in-law" suite that isn't retrofit to be a real apt for income consideration.

As a broker, I and my colleagues know which lenders to go to who do allow it, which is only a certain few.


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## iherald

I bought a duplex, but at the time I purchased it I didn't think it was a legal duplex. So the mortgage company wouldn't use half the rent. 

It turned out to be a legal duplex, so now they would use 50% of the gross rent.


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## OhGreatGuru

KaeJS said:


> Hello everyone,
> 
> I have been thinking about purchasing a condo to rent out.
> ...
> I have used TD Banks "How much can you afford?" calculator on their website and it says that I can only afford a mortgage of $155,000 with a monthly mortgage payment of $599 ($599 is 27% of my *after tax *income per month). I heard banks dont like to give mortgage payments more than 1/3 of your income. Can anyone confirm this?
> 
> ...
> How can I do this without getting another job just to "beef up" my income?
> ..
> I have never bought property before ..


You are essentially borrowing to invest, not for your primary residence. If you read some of the threads here you will find it takes a lot of time and talent to be a successsful small landlord.

Invest in something else.


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## Cal

Save up more $...then your mortgage becomes less.


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## Berubeland

This is a bad idea. 

First if you buy a new condo you are unlikely to make enough to cover the rent and maintenance. Second once the developer turns the building over to the condominium corporation the maintenance fees always go up. So your initial fees are a "teaser" rate

Next...you are beginning a brand new housing services business. The condo is just the house for your new business...how much do you know about that business? What do you know about renting property. 

Real estate is currently at an all time high, it's a lousy time to buy a condo with very little down payment. 

Vacancy and bad tenant risk... you also need at least 4 to 6 months in case of a bad tenant. This doesn't count for repairs afterwards


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