Get a Mortgage Pre-Approval
An important ingredient in a successful home search is knowing how much you can afford. You don’t want to fall in love with a property only to find out it’s outside your price range. That will only bring disappointment and heartache. That’s why I recommend getting a Mortgage Pre-Approval.
A Mortgage Broker can provide you with details on qualifying for a mortgage. While you are free to talk to a Realtor in the preliminary stages of finding a home one of the first things they will ask you is if you are pre-approved. What does this really mean? First to have a pre-approved mortgage you should have signed something with the Mortgage Broker. This allows them to do credit searches and establish the amount you qualify for. They should also give you some documentation as to the amount you qualify for. The Pre-Approval is not a guarantee of the lender giving you a mortgage. There will always be a final approval required. This is why it is always a good idea for your Real Estate Agent to put a condition in your offer to purchase which states that the agreement is conditional on financing. Also remember that once you are pre-approved you should not make any major purchases as this may jeopardize your pre-approval.
There are two main advantages to getting this pre-approval:
- It gives you the peace-of-mind of knowing you can afford homes you view on the market, and won’t have problems arranging financing.
- It’s a sign to sellers that you are a serious, prepared buyer – which gives you the edge when making an offer. This is especially evident when there are competing offers.
You can arrange for a Mortgage Pre-Approval with your bank or other lender, or by working with a good mortgage broker. I’m well-connected in the local real estate scene, so if you want me to recommend a reputable broker or lender, please contact me.
How Much Home Can You Afford?
Banks and lenders use specific criteria to determine how much of a mortgage they’re willing to offer you. They look at your income, expenses, credit history and employment status, as well as the down payment you plan to make on a home. It may seem like a scary process, but it is actually straightforward. You can usually get a Mortgage Pre-Approval in a day. You’ll be glad that you did.
Here are some items that a lender will consider
What is the Gross Debt Service Ratio or GDS?
The GDS is a standard ratio used by lenders to determine how well you can service the mortgage. The GDS is calculated by taking the sum of the monthly mortgage payments, property taxes, and heating expenses and dividing that sum by the borrower’s gross monthly income. This value should not exceed 32%.
What is the Total Debt Service Ratio or TDS?
The TDS is a standard ratio used by lenders to determine how well you can service the mortgage and your other debt including car payments, credit card payments etc. The TDS is calculated by taking the sum of the monthly mortgage payments, property taxes, heating expenses and other monthly payments on other debt and dividing that sum by the borrower’s gross monthly income. This value should not exceed 40%.
If you’re looking to purchase a condominium you will also need to include 50% of the monthly condo fees in the calculation of the ratios.
By knowing what you can afford, you can confidently shop within that price range. For example, if you qualify for a $250,000 mortgage, and you have another $100,000 available as a down payment, you can look for homes in the $350,000 range.
Have questions about arranging financing? Please submit the form on the right or call or email me.