In Canada, leasing a car can potentially affect your mortgage qualification. When you apply for a mortgage, lenders assess your financial situation to determine your eligibility and the amount you can borrow. They consider various factors, including income, expenses, and debt obligations. Here is how a car lease can impact your mortgage qualification:
- Total debt service ratio: Lenders evaluate your Total debt service ratio (TDS), which compares your monthly debt payments to your monthly income. When you lease a car, the monthly lease payments count as debt, and they are factored into your TDS. A higher TDS can reduce the amount you qualify to borrow for a mortgage.
- Credit Score: When you lease a car, a credit check history is typically involved, which generates a hard inquiry on your credit report. Multiple hard inquiries within a short period can lower your credit score. A lower credit score can impact your mortgage application and the interest rate you qualify for.
It is also essential to notice that leasing a car adds to monthly expenses (liability), but it is viewed differently by mortgage lenders compared to buying a car (asset). Having a paid-off vehicle strengthens clients' mortgage applications.
Note that the impact of a car lease on your mortgage qualification may vary depending on individual circumstances, including the specific terms of the lease and the lender's criteria. To fully understand how a car lease may affect your mortgage application, it is advisable to consult with our mortgage professionals, who can evaluate your specific situation and provide personalized guidance.
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