Reducing Your Debts: Qualifying for a Higher Home Purchase Price
In the last post, we talked about extended debt ratios. However, extended debt ratios aren’t available to everyone. To qualify for extended debt ratios, you must put at least 20 percent down on a property. The good news is that there are still options for those putting less than 20 percent down.
Paying Off Your Debts
There are two mortgage debt ratios: the GDS and TDS ratios. The GDS ratio looks at the expenses of the property you want to buy, while the TDS ratio looks at that and any other debts you might have. If you have too much debt, you might qualify for the GDS ratio perfectly fine but have issues qualifying for the TDS ratio. When putting less than 20% down, you can go to a maximum of 39% GDS ratio and 44% TDS ratio, with no exceptions.
If the TDS ratio is the issue, while the GDS ratio is fine, the simplest solution is to pay off your debts. You can do that with your own personal savings or a family gift.
Paying Off Revolving Debt with a Personal Loan
Sometimes it’s how the debt is calculated, causing you not to qualify for the home purchase price you want. There are two types of debt: revolving and loans. With personal loans, your instalment payment is factored into mortgage debt ratios. Extending the loan term can lower your payment and qualify you to spend more on a home.
A second option is to convert revolving debt to a personal loan. For example, if you have a line of credit or credit card debt, you can take out a personal loan to pay it off.
Typically with a line of credit or credit card debt, 3% of the outstanding balance counts as debt. However, when you convert it to a personal loan, the payment may be lower than 3%. That’s when you’ll come out ahead and help your mortgage debt ratio.
If paying off your debts isn’t an option, you might consider a cashback mortgage.
With a cashback mortgage, you’ll receive cashback from the lender for a slightly higher rate. With the higher rate, you’ll qualify to borrow less due to the mortgage stress test. However, you can come out ahead by paying off your debts with the cashback you receive.
How the Canadian Mortgage App Can Help
With the Canadian Mortgage App, you can run any of these scenarios.
With the GDS/TDS Calculator, you can enter your income, property details and loan details to see how reducing your debts can help you qualify to spend more on a property. Other tools in the app, like the Simple Mortgage Calculator and Stress Test, can also come in handy.
What are you waiting for? Download the Canadian Mortgage App today to try it out.