The first step in the home buying process should be discovering your budget, although most of the times it’s not. The want most likely comes before the need. You “want” a home, but you “need” a mortgage.  It’s becoming quite common for offers to be made, but then the mortgage is declined, and the deal collapses. This is stressful for everyone involved, including the buyer, the seller and the realtor. To avoid this from occurring, as soon as this thought enters in your mind “Hey, I think I’m ready to purchase a home”, get pre-approved.

My approach with clients is to find out how much they’re comfortable spending each month on their mortgage (including property tax, utilities and strata*), and then work backwards. This approach makes it so my clients are not overwhelmed when the completion day comes, and they start making mortgage payments.

Three things are considered by banks and lenders for mortgage approval:

1. Your credit history and score
2. Your ability to make the mortgage payments (gross monthly income)
3. Your monthly debt obligations (loans, credit cards, other mortgage payments, child support, etc.).

Even if you think you can afford a certain payment each month, the lender or bank will use two simple calculations to determine the maximum mortgage and payment you qualify for. They are your:

1. Gross Debt Service Ratio (GDS), which requires your monthly housing costs (mortgage principal and interest, property taxes, and half of the monthly condo fee if you are purchasing a condominium) which should not be more than 39%** of your gross monthly income.
2. Total Debt Service Ratio (TDS), which is your entire monthly debt load (including housing costs and other debts such as car loans and credit card payments) may not exceed 44%** of your gross monthly income.

What I’m trying to say is, and hopefully you understand after reading this post is that, yes, we would all love to live in a penthouse suite in downtown Vancouver that has a 10/10 view of the mountains, but not all of us can afford to do so. Therefore, find out what you can afford, and more importantly comfortable paying per month, and then speak with a licensed Realtor to help you find a home.

Feel free to reach out, and shoot me an email if you’d like to be pre-approved or have any questions.

– D

*If a strata unit.

**This number may change due to poor credit