How much can you afford?
Can you qualify for a mortgage?
This guide will help you understand how lenders will assess you as a borrower and help you qualify for a mortgage for your new Cowichan Valley property. If you’re not sure of your comfort level, consider testing your financial readiness by calculating the monthly expenses required to buy a home and live within that budget for six months. Then, put the difference between your existing expenses and new expenses in a savings account to see if your lifestyle changes are managable. It’s also a great way to save for a down payment!
When considering mortgage affordability, lenders will take into consideration the following:
- Credit rating
- Income source and type
- Years on the job or in business
- Amount of down payment
- Mortgage payments
- Maintenance, condo fees, etc.
One of the first conversations we can have is about your purchase price limit. This way, we can view properties together that fit your budget.
Affordability Rule #1 – Gross Debt Service (GDS)
The first rule to qualify for a mortgage is that your monthly housing costs shouldn’t be more than 32% of your gross monthly income. Housing costs include mortgages, taxes, 50% of strata fees and heating.
Affordability Rule #2 – Total Debt Service (TDR)
The second rule to qualify for a mortgage is that your total combined monthly debt payments cannot be more than 40% of your gross monthly income. This includes credit card minimum payments, car payments, etc. If you’re thinking about buying a car, wait until you have moved into your new house in order to avoid being turned down for a home loan.
The next steps
We can introduce you to a local mortgage broker who will give an assessment of your situation. (Note: We don’t accept commissions for referrals to the professionals that we recommend.) Brokers are independent business owners who work with all the banks. They get paid by the lender if you qualify for a mortgage and will often make an extra effort if your application is marginal.
If your profile doesn’t fit the two affordability rules there are steps you can take to improve your buying ability.
- Consider a smaller home, condo, or mobile home and ladder up to the property you want
- Pay off some debt with the guidance from the mortgage broker
- Save a larger down payment – try the strategy mentioned before
- Look at your assets and perhaps sell something that you no longer use, like a boat or motorhome
- Look at your expenses and see if you can make improvements in discretionary spending
Try these mortgage calculators provided by the Canadian House and Mortgage Corporation, a government agency.
Contact Constantin and Mariana Popa for more information and a referral to a friendly mortgage broker.