Are You Ready To Buy A Home?

Posted on January 8, 2019

When you’re thinking of buying a home, whether you are up-sizing, downsizing, or are a first time home buyer, you have to make sure you are financially ready. These three steps will help you decide if you are ready to buy a home!

“What does my lender require?”

Gross Debt Service (GDS) ratio and Total Debt Service (TDS) ratio are the two calculations that mortgage lenders use to help determine your eligibility for a mortgage.

GDS: the percentage of your gross monthly income used for mortgage payments, taxes and heating costs. If you are buying a condo half of the monthly maintenance fees are also included in this. Generally, your GDS ratio should not be more than 32% of your gross monthly income.

TDS: the percentage of your gross monthly income required to cover all debt including car loans, credit card or line of credit payments and any other debt. This also includes monthly housing costs. Generally, your TDS ratio should not be more than 40% of your gross monthly income.

“Should I get pre-approved?”

 Pre-approval before you start looking at homes will give you a very realistic idea of what you can afford. Keep your budget in mind, some pre-approval amounts can overestimate what you can actually afford to pay. Pre-approval is not a guarantee that you will be approved once you actually apply if interest rates, personal circumstances or market conditions change. However, sellers are usually more likely to work with buyers who have been pre-approved.

“Do I need to know my credit rating?”

A credit report is a summary of your financial past and shows whether or not you have had any problems in the past paying off debt. Make sure your credit report doesn’t contain any mistakes because lenders will check this before approving you for a mortgage.

The Financial Agency of Canada (FCAC) has tips on how to order your credit report for free and how to improve your credit rating.

Making sure you are financially ready is the first step to get yourself ready to buy a home! Getting prepared for lenders requirements, pre-approval and credit reports is important, but make sure you also assess your personal budget. Just because a lender will approve you doesn’t mean you can afford it!

Check out the Mortgage Affordability Calculator here. Contact us with any questions you have about how to afford to buy a home!

Have any questions? Contact us!

Shilo Storey with RE/MAX First

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We are always here to help and educate you on exactly where the market is and how you can fit into it!

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