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Mortgage Approval

Are you Financially Ready to Buy a Home?

Do you know how to calculate your net worth, or your current monthly expenses how about your current monthly debt payments? You must know your net worth. It is important to be able to discuss these details with your lender when you apply for a mortgage. Your net worth is the amount left over once you’ve subtracted your total liabilities from your total assets.

How much can you Afford?

Lenders follow the first affordability rule, meaning your monthly costs shouldn’t be more then 32% of your gross household monthly income. Housing costs include monthly mortgage principal and interest, taxes and heating expenses.
Lenders add up these housing costs to determine what percentage they are of your gross monthly income. This figure is known as your Gross Debt Service (GDS) ratio and it must be 32% or less.
The second affordability rule is that your entire monthly debt shouldn’t be more than 40% of your gross monthly income. This calculation includes housing costs and other debts, such as car loans and credit card payments. Lenders add up these debts to determine what percentage they are of your gross household monthly income. This figure is your Total Debt Service (TDS) ratio.

You’re Maximum Home Price

The maximum home price that you can afford depends on a number of factors but the most important is your gross household income, your down payment and the current mortgage interest rate. This is where you should contact your mortgage lender to help you calculate your maximum home price you can reasonably afford.

Get a Mortgage Pre-Approval

Don’t get disappointed by looking at homes beyond your financial means. Know ahead of time how much you can spend. Falling in love with the house of your dreams will only lead to disappointment and frustration if you can’t afford it. Some buyers may not wish to pursue a mortgage pre-approval until they have found the home they want to buy. However, the idea of having a pre-approval mortgage amount makes the search for your new home much easier and less time-consuming because you have a good price range in mind.

Select a mortgage agent

Your real estate agent can help you with this. They will help you locate a lender interested in providing you with a mortgage at a reasonable interest rate and with the terms that are best for you and your family. The lender will give you a written confirmation or certificate for a fixed interest rate good for a specific number of days.

The Importance of Your Credit Rating

Before your lender approves your mortgage they will want to see how well you have paid your debts and bills in the past. Understand this process; look up your credit history before they do. Get a copy; make sure it is complete and accurate. Contract either Equifax Canada Inc. or Trans Union of Canada to get a copy of your history.

Shelley Raymond

Shelley P. Raymond is the President of Solterra Co-housing Ltd., Solterra In-home Support Services Ltd., and is the Broker of Record of her own real estate company, Solterra Realty Inc., Brokerage in Port Carling, ON.

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