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Residential Mortgage Financing 101

 

The first step in arranging mortgage financing is calculating the amount debt for which you qualify, or you are comfortable in carrying!

Most people can comfortably carry three times the household’s gross annual income. Mortgage Brokers use two formulas in calculating debt servicing, which are Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS). Explanations for the formulas can be located in the Glossary of Terms.

Today’s mortgage products allow most adults to own a home, regardless of the nature of their employment or type of income, whether commission-based, hourly-based or salaried.

Self-employed or commission-based individuals will need to prove that they are current with their income tax filings and that their income is more or less consistent over a period of two or three years.

Credit history is an important part of qualifying for a mortgage loan. If your credit record is impaired because of late payments, collections or too much credit, you will likely not receive as low a rate as others who have superior credit histories, due to the perception by mortgage lenders that it is more risky to lend to you.

It is advisable to always pay your loans, lines of credit, leases and credit cards on or before their payment due dates, as the terms require. Mortgage lenders consider your credit history as far back as six or seven years.

It is advisable to have a down payment of at least 5% of the purchase price, plus the closing costs, available to you to purchase a home. You can purchase a home with no down payment. However, the mortgage lender may charge you a premium on the interest rate because of your lack of saved down payment funds.

If you are considering purchasing or refinancing a home, the first thing you should do is meet and discuss your ideas and needs with your local Mortgage Broker or Mortgage Agent who will open doors to you for options and ways to save money. One hour of your time will be well spent!