Affordability and Financing

Before you embark on your housing search, it’s important to know what you can afford.  This is where a mortgage specialist like John can help put your mind at ease.  Rather than blindly issuing a mortgage pre-approval, he will make sure that the important documentation is covered.  That way you have a clear understanding of the transaction, and know exactly how much your mortgage will be and at what rate.

Thoroughly review your current income and expenses. How much will your new mortgage add to your monthly expenses? Lenders determine affordability by looking at your Gross Debt Service ratio (GDS) and your Total Debt Service ratio (TDS). The GDS ratio is based on what you can afford to pay each month; it includes mortgage payments, taxes and heating. Maximum GDS ratio is 32%. The TDS ratio includes everything covered under GDS plus all your other financing obligations. Maximum TDS ratio is 37% (40% if it’s CMHC).  Depending on your credit, these numbers can be extended to 44%.

John can help you do a complete analysis based on net income and projected budgets to determine what you can afford.

This pre-qualifying stage is also the time to find out about the differences between conventional mortgages and high-ratio insured mortgages. Ask about assistance for first-time homebuyers such as the 5% down payment allowed under the “First Home Loan Insurance Program” sponsored by CMHC and the federal government’s “RRSP Homebuyer’s Plan”, which lets you use funds from your RRSP to purchase a home.

John will also go over closing costs with you, like land transfer taxes, legal fees and other disbursements. A good rule of thumb is to budget about 1.5% of the purchase price for closing costs. And don’t forget: if you buy a new home from a builder, you’ll pay 5% GST on the total purchase price. Before you’re pre-qualified, he will run a credit bureau report on you and ask for written confirmation of income and how much you plan to put down on your purchase.

Once you’re pre-qualified, the interest rate is guaranteed for 60 to 120 days from the time of your application. If rates drop, you’ll get the lower rate; if they rise, you’re covered. And just because you pre-qualified by a certain financial institution, you’re by no means committed to that lender. John will shop the market to get you the best possible deal!