HOW LENDERS QUALIFY BORROWERS? Will I Qualify? What is GDS? What is TDS? What is LVR?
How large a mortgage will you qualify for?
Once the lender has determined the applicants’ gross income and expenses they'll calculate if the applicant can afford the mortgage based on their ability to carry the costs. Costs include: 1.The Mortgage Payment 2.Property Taxes 3.Condominium Maintenance Fees
Gross Debt Service Ratios (GDS)
The GDS ratio is the ratio between gross income and shelter costs.
As a rule most mortgage lenders say that your monthly housing expenses should not exceed 30% of your monthly gross family income. If the sum of the mortgage payment, property taxes, condo fees and heating costs exceeds the lenders Gross Debt Service Ratio, the mortgage will likely be declined.
Total Debt Service Ratios (TDS)
Lenders have a second calculation which is the TDS ratio.
The lender is concerned with your ability to carry your costs other than simply the shelter payments. Generally, the maximum for both shelter and non shelter financial obligations combined is set at 40% to 42% of your family gross income. Non Shelter Financial Obligations include:
Car Payments Credit & Charge Card Payments Personal Loans Lines of Credit Finance Company Loans Long Term Leases (more than 1 year) Tax loans Long term RRSP catch up loans (more than 1 year
Final Consideration Is The Property Appraisal Value (Most loan commitments are conditional on the appraisal value)
The home is the collateral for the mortgage loan. The lender must determine that the property offers adequate value as security in relation to the mortgage loan amount. To make this decision the lender hires a professional real estate appraiser. The appraiser will submit a report detailing their estimate of the value of the residence based on the recent sale of comparable properties in the area.
Loan to Value Ratios (LVR) is calculated by dividing the mortgage (s) by the property value. Conventional Mortgages have a loan to value ratio of 75% or less.
Underwriting Conclusion After the lender has reviewed the application, there can be four outcomes:
1. Approval. If the loan is "picture perfect", the loan will be approved.
2. Approved with conditions (the most common response) (a) If the underwriter needs additional documentation before a decision can be made, a conditional approval will be given. An example of a condition could be submitting pay stubs to validate the borrower's income. (b) The loan can be approved, but a "prior-to-funding"condition must be met. In this case, the loan documents will be prepared and sent to the lawyer, but the lender will not fund the loan until the condition has been met. An example of a "prior to closing" conditional approval could be proof of sale of existing home where the equity will be used as the down payment.
3. Suspended. In this case there is insufficient documentation of verification to decide whether or not to approve or decline your application.
4. Denial. Lenders will be unable to approve a loan if the loan file has substantial deficiencies and does not meet their minimum standards.
Is It Accurate? Probably Not! Don't take a chance- Check First.
Just like the old saying - a stitch in time saves nine-by getting
a copy of your credit report before you apply for a mortgage
you may be able to avoid surprises and delaysin having to
answer questions about your credit report. Because the report
contains information about you, you have a right to inspect a copy of it.
Equifax, Canada's largest credit bureau, will mail you a free copy of your personal credit file. Mail or fax a written request with copies of two pieces of identification. *Do not phone as they will not provide information over the phone. In a couple of weeks, they will mail you your report. Can't Wait.For a $15.00 feeyou can check your personal credit bureau report on line. Find out how your credit looks right now.
Another important qualifying factor is your creditworthiness.
Past and existing mortgage debt. A good payment history on mortgage debt is important. Payments 30 days past due are reflected in the report as late.
Credit balances. Payment amounts on your revolving and installment debts. Revolving credit refers to department store and bank credit cards. Installment credit refers to longer term credit, such as car loans.
CMHC MORTAGE INSURANCE
How much will it cost? Do I need It?
CMHC Mortgage Loan Insuranceis an insurance that covers your lender’s risks associated with financial loss that can occur when a condo owner or home owner defaults on their mortgage loan. You will be required to purchase mortgage insurance through your lender. and is required if you have a "high-ratio" mortgage. As with any insurance, there are Insurance Premiums to be paid. The amount varies and can range between 0.65% and 2.75% depending upon how much of the purchase price is financed. Mortgage loan insurance is not to be confused with mortgage life insurance which guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.
USING YOUR RRSP TO BUY A PROPERTY
RRSP Home Buyers Plan
TAX FREE Withdrawl $40,000. per couple.
Up to $35,000. per person could be withdrawn tax free from your RRSP to buy your dream condo. Couples which includes common-law will be able to withdraw $70,000. with the government's"Home Buyers Plan" (HBP). Follow the link to get all the qualifying details.
