There are a lot of options out there to get a home loan, but you have to go into the market knowing that not all loans will be right for you. You really need to find the right mortgage for you and we can help you find the perfect fit.
You may find that you qualify for a certain amount but that doesn’t mean you should take on that mortgage. It may not be the right fit for you and your family. A mortgage is a big deal and it comes with a lot of responsibility as well as will have a big impact on your current lifestyle as you know it.
There are a broad range of factors that create the basis for lending criteria. Oftentimes these do not take into account the unique circumstances within your household. Your mortgage payments will make up the largest chunk of your housing costs but it is not the only fast. This has to be taken into consideration.
Before diving into home ownership, you would want to take stock of all of your income and expenses. This will help you to stay within your comfort zone, knowing what you can afford and what will be off the table.
There are a number of guidelines and policies in Canada that help home buyers to stay within a comfortable budget and I’m usually. Mortgage lenders will look carefully at your income and your debts when determining what type of mortgage you should receive. They do this to ensure that you don’t get in over your head.
Ratios Lenders Use to Determine Your Mortgage
The two main comparisons that lenders use as ratios to determine if you can afford a mortgage are the Gross Debt Service (GDS) or the Total Debt Service (TDS).
The Gross Debt Service will compare your income and your mortgage expenses. The rule is that no more than 30% to 32% of your annual gross income should go to your mortgage. This includes all fees related to the mortgage to include HOA maintenance fees, property taxes, heating costs, your principal and of course your interest.
The Total Debt Service compares all your existing debt and your gross annual income. This really takes the big picture into view. It will look at your personal loans, any car loans you may have, any leases and credit cards. The lender you choose to go with may allow your total debt payments to go as high as 40% of your gross annual income. So using this ratio could allow you to qualify for a higher mortgage with higher payments but remember that it is calculated against your gross income and not the income that you actually take home.
If your ratio falls outside of any of the benchmarks there is no need to lose hope. You may just need to review your budget and see where you are spending money which could be going towards clearing up more of your debt. Once you can identify ways to use more money to clear up your debt, start doing that and then revisit the lender for another calculation after you have taken down your loans a bit.
Tips to Put You In a Better Position to Qualify
Here are some more tips that can help put you in a better position for obtaining a mortgage:
- Do you have any short term expenses you will be removing from your budget soon? For example, a student loan that will soon be paid off or any childcare costs that may soon change.
- Can you consolidate your debt providing a lower interest rate and lower monthly payment?
- Have you considered a home that may allow you the opportunity to earn an income through a rental suite? This can help offset your out-of-pocket mortgage costs.
- Have you considered looking at lower priced homes, homes further away from an urban center for example?
- Have you considered the option of building just the amount of house you need from the ground up instead of trying to buy something already on the market?
If you have never considered building your home, you should get in touch with us. This is right up our alley, and you may be surprised at what you can do when you build. Yes, these benchmarks and rations can help you understand what home ownership can cost you. But you don’t have to overextend yourself.
Give us a call, we are home builders with a team of experts in house as well as our partners. We can put you on to a mortgage specialist that can work with us to help you find the right numbers as we build you the perfect home.