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Anyone approved for a mortgage while still articling?


TheDevilIKnow
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TheDevilIKnow
  • Law Student

Hello,

I am wondering if anyone has had success in getting a mortgage from a bank while articling, on the assumption that your employement is stable - without the bank wanting to wait for proof that an associate position has been secured?

As a mature student with a family, I am looking to stop renting and get back into home ownership as soon as possible. I have public sector articles lined up that should result in a permanent position with about as much certainty as possible in this profession. It would be great if this could happen as soon as I start articling next year, rather than when I start the permanent position a year later... but don't want to get my hopes up.

I'm mostly wondering about Scotiabank, since I'm with them for the LOC, but would be interested to hear about other institutions as well.

Thanks!

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Garfield
  • Articling Student

I am curious about this as well. I have quite a bit on my LOC, to the tune of $90k. I am not sure how much OP has on the LOC, but I am curious if others have obtained a mortgage while having Scotiabank LOC debt + OSAP and at what point (articling, first year, etc.). 

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erin otoole
  • Articling Student
2 hours ago, Garfield said:

I am curious about this as well. I have quite a bit on my LOC, to the tune of $90k.  

$81k on my LOC, Ontario non big law articles. Banks told me to take a hike. 

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Turtles
  • Law Student

There's two particular factors here:

First, banks and mortgage brokers calculate your total debt service ratio (TDS). TDS factors in your outstanding loans' payments relative to your income.

TDS = (Principal + Interest + Taxes + Heat + Other Debt Obligations) / Gross Annual Income

For unsecured credit (i.e., loans), Other Debt Obligations will generally equal no less than 3% per month of the outstanding balance, but may be adjusted upwards depending on the terms of the loan. 

CMHC requires a TDS below 44%. If you have high loans or low income, the only way to overcome a high TDS would be to increase income (e.g., qualifying together with a partner). You can use online GDS and TDS calculators and play with the numbers.

Second, banks and mortgage brokers have varying standards to how they consider employment and calculate income. Some will be weary of term employment like articling, as there is no guarantee to them that you would be hired back, and the standard outside of law is to require the person to have held the position for 2 years to show stability. Some will overlook time in the role and instead simply calculate income based on your T4s averaged over the last 2 years. For most articling students, this would be a barrier to getting a mortgage if they weren't working a lucrative role during law school. However, some brokers can be more lenient, particularly with professionals, either above board or through questionable means. You'd generally only hear of who might be able to help you through the grapevine from others who have successfully gone through with them, and not from cold walking into a bank or searching online. Also, generally mortgage brokers have more flexibility than banks due to the ability to shop different lenders, in addition to questionable oversight and motivations.

I'll also throw in that increasing your down payment can help de-risk the mortgage from the lender's perspective and they can become more flexible, especially if you can exceed 20% so as to not require any mortgage insurance (which takes CMHC qualification requirements out of the picture). It's not a secret anymore many banks and brokers specifically targeted people with no job and no employment history (e.g., international students) with easy-to-get mortgages on the condition they make a sizeable down payment. 

Absent a couple hundred thousand waiting under the mattress, if you have realtor friends, you might be able to start asking around for broker recommendations, specifically for brokers specializing in new professionals. Doctors in residency with 60k annual incomes and 200k in debt get mortgages too 🙂 

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TheDevilIKnow
  • Law Student

Thank you @Turtles for that detailed info. I didn't provide specifics on my situation because I was hoping there might be a distilled answer specifically on the "Is articling good enough to predict income" front, but of course it makes sense that this is just one factor among many. I wasn't aware of the specific number requiremends for Other Debt Obligations and TDS, so thank you for that.

It so happens I am married to one of those doctors in residency with a 60K annual income and 150k in debt. We also already own two properties but, being in Alberta, they have no real net value right now (worth approximately what we owe, despite having put down big enough down payments that neither are CMHC-covered). This year we were "pre-approved" for $800K based solely on her income trajectory; we were specifically told that mine wouldn't count for anything yet.  Unfortunately $800K is not enough to get a big enough space for our family in this stupid market - hence the importance of determining when my job is going to "count" for the lenders!

Thanks again.

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On 9/17/2022 at 3:28 PM, Garfield said:

I am curious about this as well. I have quite a bit on my LOC, to the tune of $90k. I am not sure how much OP has on the LOC, but I am curious if others have obtained a mortgage while having Scotiabank LOC debt + OSAP and at what point (articling, first year, etc.). 

I got a mortgage as a second year lawyer with a sizeable loc. 
 

Had a partner though. 

They key is how the bank calculates the debt serving of the loc (assuming it hasn’t gone into repayment already. Cibc want to calculate the repayment at 3% of the outstanding balance a month or something ridiculous like that. Scotia (who my loc was with) calculated repayment based on the eventual 15 year repayment period. 

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lawfriend
  • Lawyer

You won't be able to get a mortgage as an articling student. Many banks have a special track for medical residency students but no longer articling students (they used to). 

As Turtles said. Even if you did not have an LOC, they don't take an articling contract as anything more than temporary contractual employment. When they assess income they generally either assess it based on an average of the previous years (which probably would be very low for most articling students given they were previously in law school) or on a full-time letter of employment (which an articling student won't have since articling is a temporary contract). So articling salary wouldn't really help much without other sources of income (a partner with sufficient income, high downpayment, etc.)

Source: have a close relationship with a mortgage broker

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t3ctonics
  • Lawyer

I got a mortgage with RBC as an articling student. Scotia also approved me for one. However, my firm provided a letter of employment. I hadn't even been offered an associate position yet, though my firm's model was to hire back anyone who wanted to stay and give anyone (articling student or associate) a 6 month warning if they weren't cutting it. I would think most firms would be willing to provide a letter of employment for articling students who have been hired back, but much less likely for those who haven't yet.

RBC just relied on my letter of employment. Scotia considered it too, but noted that I was articling and attributed post-articling income to me based on their estimated average for lawyers.

It seemed that Scotia was willing to do all sorts of weird stuff. Whenever I've inquired with them about other services they assume it's for business purposes and offer me all sorts of business services and accounts, even though I've always told them I'm an employee and not in business myself. They wanted to convert my PSLOC into a business line of credit after I finished articling and I actually had to persuade them not to, and to just put it into repayment instead. They wanted to just keep my PSLOC rolling as a business line of credit with no repayment requirement, and to double the credit limit (which would have been to $150k at the time).

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BlockedQuebecois
  • Lawyer
35 minutes ago, t3ctonics said:

I actually had to persuade them not to, and to just put it into repayment instead.

You must be the reason Scotiabank has ghosted me on my PSLOC and left it open.

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t3ctonics
  • Lawyer
1 minute ago, BlockedQuebecois said:

You must be the reason Scotiabank has ghosted me on my PSLOC and left it open.

Maybe they hope you don't pay down the principal so they get to keep charging you interest forever!

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