Chapter 8 – Qualifying

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Several factors come in to play when a lender is deciding how much you qualify for.

 

Credit

Lenders want to see that you have a good history of paying your bills.

 

Gross Debt Service Ratio (GDS)

Gross debt service ratio is the percentage of your income that is going towards your home payments (mortgage, property tax, condo fees).

The percentage allowed varies among lenders. The major banks usually allow up to 35% whereas other lenders will go up to 44%.

For example, if you make $10,000/month, then TD would not want your monthly payment to exceed $3500.

 

Total Debt Service Ratio (TDS)

Total debt service ratio is the percentage of your income that is going towards ALL of your payments (mortgage, property tax, condo fees, credit cards, prior mortgages, car loans). Major banks usually allow for a TDS up to 45%. Some lenders have no TDS limit.

 

Down Payment Amount

If you have more than 20% for a down payment, some lenders will allow you to increase your amortization to 35 years, reducing your monthly payment which in turn allows you to qualify for a larger mortgage based on GDS/TDS restrictions.

 

Fixed vs Variable vs Short Term

Recently, the government introduced some new lending guidelines as a precaution to avoid what happened in the United States.

IF you have LESS than 20% down and want to qualify for a variable mortgage OR any mortgage with a term less than 5 years, you are subject to these new guidelines. Basically the guidelines require that lenders use a much higher qualifying rate which greatly reduces the amount you’re able to borrow.

 

The mortgage scenarios that will allow you to borrow the most are if you either have 20% down or you want a 5 year fixed.

As you can see, it’s never a one size fits all to see how much you qualify for. That’s why I don’t provide mortgage affordability calculators on my site, because they don’t paint the full picture.

Don’t worry if this seems complicated, that’s why you get help from a mortgage specialist.


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Iain

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