ASSESS FINANCIAL READINESS
Assess your present household budget and your annual income to determine if you are eligible for a mortgage and how much you can comfortably afford.
WHAT DO LENDERS REQUIRE?
Mortgage lenders use two calculations to help determine your eligibility for a mortgage – your Gross Debt Service (GDS) ratio and your Total Debt Service (TDS) ratio.
Your GDS ratio is the percentage of your gross monthly income used for mortgage payments, taxes and heating costs and – if you are buying a condominium – half of the monthly maintenance fees. As a general rule of thumb, your GDS ratio should not be more than 32% of your gross monthly income.
Your TDS ratio is the percentage of gross monthly income required to cover monthly housing costs, plus all your other debt payments, such as car loans or leases, credit card payments, lines of credit payments and any other debt. Generally, your TDS ratio should not be more than 40% of your gross monthly income.
HAVE YOU BEEN PRE‑APPROVED?
Getting pre‑approved for a mortgage before looking at properties gives you a more realistic expectation of what you can afford.
However, keep in mind that the pre‑approved amounts can overestimate what you can actually afford to pay.
Pre‑approval does not guarantee you will be approved once you actually apply if market conditions, interest rates, or your personal circumstances change.
WHERE CAN YOU GET PRE‑APPROVED?
You can get mortgage pre-approval from a traditional lender, such as a bank and credit union, or by working with a mortgage broker who acts as an intermediary between you and the lender. Mortgage brokers negotiate mortgage terms and rates on your behalf, and usually work with dozens of different lenders, including mortgage finance companies. Their fees are paid by the lender when your mortgage is signed.
DO YOU KNOW YOUR CREDIT RATING?
Order a copy of your credit report to make sure it does not contain any errors because lenders will check it before approving you for a mortgage. A credit report is a summary of your financial history and shows whether or not you have had any problems in the past paying off debts.
The Financial Consumer Agency of Canada (FCAC), a federal government agency, has tips on how to order your credit report for free and how to improve your credit rating.