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:
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).
WWW.GUYTHEMORTGAGEGUY.COM or email@example.com
CMHC CONSUMER NEWSLETTER
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
Reduced environmental impact
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.