Debt Ratios: Qualifying for a Higher Home Purchase Price
This will be the first in a series of blog posts about how to qualify for a higher home purchase price.
In the future, there will be a more significant emphasis on the Canadian Mortgage App in the blog. At the end of each blog post, we’ll discuss how to use the app to benefit further. If you haven’t downloaded the app, now would be the time to do it.
In this first article, we’ll look at how extended debt ratios work.
Debt Ratios: Bank vs. Non-Bank Lenders
Besides income and credit score, debt ratios are another way prime lenders qualify borrowers.
If you’re putting less than 20% down on the property, the maximum debt ratios you can have are 39% GDS and 44% TDS. But did you know that it may be possible to have higher debt ratios if you’re putting down at least 20%? The lender’s flexibility comes down to what type of lender it is.
Non-bank lenders have a lot of benefits over the banks, including better prepayments, fairer penalties and more competitive rates. However, one area that the banks are superior is mortgage debt ratios. The banks generally have a lot more flexibility. It all comes down to the source of funds.
Since the banks are balance sheet lenders and accept deposits, they can set the rules for mortgage debt ratios. That means that as long as you’re putting at least 20% down, a bank may be willing to go higher than the traditional 39%/44%.
Non-bank lenders don’t have that same flexibility. Because non-bank lenders generally get their financing from the mortgage-backed security market, non-bank lenders tend to be limited to the standard maximum 39%/44% debt ratio.
How Does a Bank Determine If I’m Approved for Higher Debt Ratios?
A bank will look at the whole picture. A bank will consider your income, debt, credit, assets, and property when determining whether to approve you for higher debt ratios.
Generally speaking, banks want to see that you have stable employment. That means you have been with your employer for at least 2 or 3 years. It also means that you have a credit score of at least 800 and emergency savings as a fallback if you can’t make the mortgage payments.
How the Canadian Mortgage App Can Help
Lenders will generally let you go as high as a 50%/50% debt ratio on extended debt ratios. To determine how much you could qualify for with a 50%/50%, you can use the GDS/ TDS Calculator in the Canadian Mortgage App.
With the GDS/TDS Calculator, you enter a few basic details about yourself and the property you’d like to purchase. This includes the loan, your annual income, the property tax and if there are any condo fees. You can then play around with the numbers to see how much more you could spend on a property with a higher debt ratio. You can drag it to the bottom of the screen to set the loan amount.
What are you waiting for? Download the Canadian Mortgage App today to try it out.
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