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What are some Mortgage Financing Requirements?

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Affordability

What does Affordability really mean? Affordability can be subjective (depending on your lifestyle), but it can also be quantifiable (lenders use a formula to determine if you can afford Mortgage Financing). 

Debt Service Ratios

Affordability is assessed by your gross debt service ratio and total debt service ratio.

Gross Debt Service Ratio (GDSR) Homeownership costs (mortgage payments, property taxes, heating and, if applicable, 50% of condo fees), relative to household income. 

Total Debt Service (TDS) Homeownership costs (as outlined above) plus debt payments (credit cards, lines of credit, student loans, care loans, etc.), relative to household income.

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The highest allowable GDS ratio an "A" Lender will accept is 39% and the highest allowable TDS is 44%. There are some scenarios where a "B" Lender may be the best short term option as they can approve an applicant at higher GDS and TDS ratios, however there are lender fees and other aspects to consider.

 

Your Mortgage Professional can advise you on the options available to you.

Mortgage Loan Insurance

Mortgage Loan Insurance is required for any home purchase with a down payment of less than 20% of the cost of the home. Loan Insurance protects the Lender against mortgage default. 

You Credit Score

A lender will consider your credit score when determining eligibility. Generally a score of 650 or greater is required to be approved for funding from an "A" lender. 

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The main factors involved in calculating a credit score are:

  • Your payment history

  • Your used credit vs. your available credit

  • The length of your credit history

  • Public records

  • Number of inquiries into your credit file

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You can improve your score by paying bills on time, using less credit or paying off debt, and maintaining a balance that is 50% or less of your limit. It is wise to check your credit score from time to time to ensure there are no errors and to make sure you are staying in good standing. You can get your credit score from a variety of sources (sometimes through your banking app). The below link will bring you to Equifax's credit score and report tool.

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