With the recent major changes by the government to the lending rules, the usual way of doing business may no longer apply. Even if you were ‘approved’ before, you may not qualify for a loan today. This especially applies to the self-employed, commission earners as well as purchases with longer closing dates such as new homes. Even though, I dislike jargon as much as the next person here are two terms you might not be familiar with but affect your ability to borrow: TDSR and GDSR.
GDSR stands for Gross Debt Service Ratio and TDSR stands for Total Debt Service Ratio. These terms are percentages that lenders use to figure out how much debt you can afford or ‘the ability for you borrower to service their debt’.
The Gross Debt Service Ratio (GDSR) is based on your typical monthly housing costs. Normally, that includes your mortgage principle and interest payments, property taxes, secondary financing, heating and condo fees, if applicable. If you take all those expenses and add them up then divide it by your household family income, the government would like to see that number to be less than 32-39%.
The Total Debt Service Ratio (TDSR) is based on all of housing costs (same as GDSR) plus payments on lines of credit, credit cards and other debt. If you take all those expenses and add them up then divide it by your household family income, the government would like to see that number to be less than 44%.
Keep in mind that your income is your gross monthly income, not your net (take home amount). Banks need to follow the lending rules set out by the government and approvals are always subject to changes in lending rules like those that just happened. If you had an approval, you may want to get it re-approved. If you have not been approved, don’t assume you qualify.
Please note that I’ve assumed your purchase is for a personal residence. If you are considering buying for investment, speculation or any reason other than your primary residence. Many more factors come into play.
Do you have a real estate question you want answered? Feel free to call me at 1-855-737-8383 or send an email to Info@StevenSilvaTeam.com Perhaps I’ll feature your question in the next issue!
RBC Buying and Financing Seminar with Leanne Conroy at the RBC at 26 Holland St. E. 7pm to 8pm Hope you will come out. Alexandra and I will also be there to provide no pressure honest answers to any Real Estate Questions too.
It’s really a bad idea to buy or sell a home without getting a home inspection from a licensed home inspector.