Make sure you qualify for a mortgage!

So, you can afford your desired mortgage payment, but do you qualify for it?  There are a lot of factors that a lender considers when deciding to give you a mortgage. There’s a difference between knowing you can afford a mortgage and actually qualifying for one.

Recently, there was another round of changes to the rules that banks use to qualify you for a mortgage.  But what does that mean?  It doesn’t mean you’re shut out of the real estate market completely. If you have the income and a steady job, it just means you have to be a little more careful with your debt load. Lenders will look at two factors and five variables to determine whether you qualify for a mortgage loan. In the industry, the common terms for these variables are the Five Cs of Credit. If you pass the credit test, the industry also looks at a couple of ratios that must fit to qualify for the mortgage loan. It’s these ratios that have been most affected by the changes.

The first two factors are your ability to make your mortgage payments and your willingness to make those payments. These two factors are then categorized into the five variables. They are:

  • Capacity: Can you repay the mortgage loan? This is the most important of the five. A lender will look at your credit report and review your debts to see if you’ve paid them on time. Lenders don’t like to see missed payments consistently, which sends a message that you may be over your head with your debt load. Lenders also don’t like to see too much debt and/or maxed out credit.
  • Capital: This is the amount of money you have to invest in the property yourself. Lenders don’t like to take all the risk. So, make sure you have at least the minimum down payment. That down payment can come as a gift from a family member or can come from a bank loan or a line of credit as long as you can manage the extra debt.
  • Character: Okay, this is a grey area: It’s an impression of your trustworthiness. It’s the big picture.  Lenders look at how long you’ve been employed and how secure you are. They will also look at your ability to save and manage your credit.
  • Collateral: Yes, your cash flow is important but so is the property you’re buying. The house is pledged as security for the loan. Collateral can also come from a third party who will guarantee the loan.
  • Credit: This is your credit history – how long have you been using credit. The more years you’ve been an active credit user the better.

Now, on to the ratios. There are two critical ones that lenders use that determine your ability to service your debt – your gross debt service ratio or GDS and your total debt service ratio or TDS. To qualify for an insured mortgage loan, or high-ratio mortgage, your GDS cannot be higher than 35% of your gross income. GDS is the amount spent on housing — principal mortgage payments, interest, taxes and heat. The TDS includes all your debt and cannot be higher than 42 per cent of your gross income.

If you opt for a fixed rate, which today can be had for less than 3%, you’re relatively safe throughout the term of the mortgage, and as long as you opt for a five-year term, you are qualified on that rate.  But if you decide you want a variable rate, which is sitting as low as 2.4%, you will have to qualify at the lender’s benchmark posted rate, which now 4.79%

The good news is that the housing market is balanced; meaning people are still buying and selling. So let’s put a plan together to help you get into your new home. Call me today!

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta).



Renovator’s Green-Guide – Decks and Patios

In 2011, $63 billion was spent in the renovation sector in Canada, exceeding new home construction expenditures by approximately $20 billion. As housing stock ages, more renovation work will be required to renew and preserve the millions of homes already built. Renovations are popular as they provide a way to update the interior and exterior of a home, add space and address problem areas.

One of the easiest ways to add new and enjoyable living space to a house is to build a deck or patio. There are many green features that can be included in the renovation project that will reduce its environmental impact and conserve resources.

Quick reference: green deck and patio features

Occupant health / healthy indoor environments

  • Use materials with low pollutant emissions and low-VOC paints or stains.
  • Include details to prevent moisture damage to house.

Energy efficiency

  • Install energy-efficient lighting.
  • Protect existing trees or shrubs that provide shade or shelter for the house.

Resource conservation

  • Material choices: certified forest products, materials with low embodied energy.
  • Durability, resilience and serviceability: low-maintenance, durable materials, durable and easily cleaned surfaces.

Reduced environmental impact

  • Manage demolition and construction waste.
  • Reuse materials where possible.
  • Recycle materials.
  • Select products and materials with low pollutant emissions.


  • Avoid expensive future problems by identifying and addressing hazards at the beginning of the job.
  • Support low maintenance and replacement costs by using quality, durable materials.

For more information

To learn more about other sustainable technologies and practices that can improve the performance of your home as well as information on owning or buying a home, call Canada Mortgage and Housing Corporation at 1-800-668-2642. For over 67 years, CMHC has been Canada’s national housing agency and a source of objective, reliable housing information.