Tuesday, 16 April 2013

Recent Government Changes to Mortgage Qualifying

What changes has the government made that affect the way someone qualifies for a mortgage?...
One of the key factors that the government has changed is the maximun ratios based on gross income that someone is allowed to borrow, commonly referred to as GDS and TDS, which stands for Gross Debt Service and Total Debt Service.  GDS represents the percentage of your gross income that you are allowed to borrow to satisfy the mortgage payment, property taxes, and an estimate of home heating costs, and the TDS considers the GDS ratio as well as any other revolving debts a borrower may have as well, such as car payments, credit card payments and loan payments.  These ratios have been 32% and 40%, for GDS and TDS respectively for many years and very rarely been connected to any other lending criteria.  The maximum ratios are now directly connected to a borrowers credit score; if a borrower's Beacon score is 680 or less the maximum GDS and TDS is now 35% and 42%, if a borrower's Beacon score is 680 or higher, the maximum GDS and TDS now are 39% and 44%.
To Put it into perspective let us assume the following scenario;
  • a couple earning $80,000 in combined gross income, and a $500 car payment
  • property taxes of $4,000 per year, and $1,000 annual heating costs
  • a 25 year amortization at 3.19% for a 5 year closed term
If Beacon Score is 680 or less If Beacon Score is 680 or higer
Maximum Mortgage qualified for is: $396,000 Maximum Mortgage qualified for is: $450,000
You can see from this example that there is quite a bit of difference in the qualifying amount, depending on the borrower's credit score.
To find out more about this or other Qualifying changes, please contact me to discuss or arrange a meeting to review your options.

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