So you’ve found a mortgage calculator and it has given you the confidence that you can afford a home – awesome! You’ve spoken to your spouse, called your parents and friends to share the good news! However, before you rush off to the bank and submit a mortgage application, there are a few important factors to consider that the mortgage calculator did not tell you.
The most important factor in getting qualified for a mortgage is your gross income. Lenders need assurance that you are able to maintain your mortgage account comfortably. To determine this, they use 32% of your gross income to work out how much you can afford to pay each month. This 32% benchmark is called the Gross Debt Service (GDS) Ratio test. The GDS is calculated on gross combined income for couples if both parties are included in the application. For this reason, including your spouse on a mortgage application might be a good thing since a combined income is likely to be higher than a single income.
You should also consider your other loans and how much room you have to accommodate a new loan payment before submitting a mortgage application. Your current expenses and your mortgage should not exceed 44% of your gross income. You might want to pay off other debts or find a way to consolidate them before you apply for a mortgage. The mortgage calculator might tell you that you can afford a mortgage, but you might need more time to improve your situation.
Your credit score and history are factors that will impact your ability to qualify for a mortgage. The lender will assess how you have managed other loans and check for on time payments and stability. Your credit standing is important when applying for a mortgage because lenders use it to help determine the rate and conditions they will attach to your loan. You should also bear in mind that the credit score and history of anyone else included in the application will be assessed on the same grounds. If you do not have good credit then you should definitely take steps to improve this before submitting a mortgage application since the decision to buy a home is not an overnight process.
So while the mortgage calculator is a good tool to help you calculate your potential mortgage payment, you need the Mortgage Advocate to assess your unique situation and structure your application to suit the lenders. Don’t take the chance and approach TD, CIBC, Scotia Bank, RBC and other main banks (not sure if it’s advisable to identify banks) by yourself, as this will minimize your ability to get approved the first time.
For a free, no obligation assessment, contact Your Mortgage Advocate or call 1866.313.3339.