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Understanding how Mortgages are qualified…

Why does my pre approved amount change when looking at different condominiums??

Often times we have found a common frustration when it comes to purchasing a condo and how different variances can affect your pre approved amount. Some key things to keep in mind when looking at different properties and understanding how TDS and GDS can effect your pre approved amount.

Debt service ratios compare borrowers’ debt to their incomes. There are two ratios that check to see if the borrowers have enough income to service (i.e afford) their debts. The gross debt service ratio (GDS) includes all of the debts that are associated with housing. The total debt service ratio (TDS) includes all of the housing related debts (GDS) plus any other loans that an individual may have (such as credit card payments and car payments).

The figure is a ratio called “TDS”

  This is a percentage of the below ratio, numerator and denominator: TDS 

       All Costs

                      (mortgage payment + property taxes + condo fees + heat, if condo fee does not include heat + any debts such as credit cards or loans)

   _________________________________________________________________________

                 Your combined total Gross income

We have to then qualify the mortgage at 4.64% (this is not your actual rate, just the qualifying rate as of

October 17th with the new rules in effect)

For a maximum number of 44% TDS and 39% GDS.

Most lenders use a TDS ratio of 40% to qualify prospective borrowers. In other words a borrower can spend no more than 40% of his or her gross qualifying income for principal, interest, tax and heat payments and all other debt payments to qualify for a mortgage loan.

Example: if a condo has condo fees of lets say for instance $450 per month, it affects the above ratio’s and thus decreases the maximum approval (same if the property taxes are higher,  (read more on our property tax blog here)

If you have a much HIGHER condo fee of $850 a month, we will have to reduce your approval to fit within the TDS / GDS guidelines that all banks and lenders must abide by.

IF you find another place with lower condo fees, then pre approval amount increases .. or conversely, if another place has higher condo or property taxes, it would decrease.

Another cost to consider in the purchase of your new home would be closing costs. This can add up to about 1.5 % of the total value of your home. We dedicated an entire blog of its own to closing costs. Read more on that here

Hopefully this can help you better understand the qualifications and what to look for when viewing condo’s, but the GREAT news is – we are here to help!

 

 

 

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