Buying A Home, The 30,000 Foot View

Sukh Sohal • October 3, 2019

Did you know that the average Canadian will spend roughly 11 months actively engaged in the house buying process? However, most of the dreaming (and preparation) happens before then. Buying a home is a big deal, and it's a decision that shouldn't be taken lightly. With all the recent changes by the Canadian government tightening mortgage qualification, you can never be too prepared!

Even if you don't plan to buy for a couple years, there is only so far general information can take you. Each person is different, as are their financial situations. So if you'd like to discuss your personal financial situation, feel free to contact us anytime. We would love to work with you!

With that said, here is a 30,000 foot view of what you need to know about buying a home, as it relates to mortgage financing.

Are You Credit Worthy?

First things first, do you have a good credit? Having good credit is of paramount importance when applying for a mortgage. Establishing a good credit score takes some time, most lenders want to see that you have managed your credit well over a minimum of a 2 year period.

Even if you have a huge downpayment and manage your money perfectly, and the idea of debt disgusts you, having an established history of borrowing and repaying money is crucial. It's really hard to get mortgage financing without a credit history.

How Will You Repay Your Mortgage?

If a lender is going to lend you money to buy a property, they are going to want to know you have the means to pay them back. They want to know that you have a steady job, and will make you prove it through documentation. Depending on how you get paid, lenders will want to see an employment letter, pay stubs, your T1 Generals, Notice of Assessments, and really anything else they feel gives them an accurate picture of how much money you make!

Do You Have A Downpayment?

In order to borrow money from a financial institution, you're going to have to bring some money to the table. Of course the best downpayment comes from an accumulation of your own resources, but there are other sources of downpayment that are available to you. A 5% downpayment will be the bare minimum required, and depending on the purchase price, it might be more.

It's important to know that you will have to prove the source of all downpayment funds. This can typically be done through 90 days of bank statements. The lenders (and government) want to ensure that you aren't purchasing the property with the proceeds of crime, and laundering money. Just know that there will be heavy scrutiny on where you got your downpayment.

As houses become more expensive, a lot of parents have decided to help their kids with the purchase of a property by gifting downpayment funds for a downpayment.

How Much Can you Afford?

What you can afford on paper and what you can afford in real life are often very different. The amount you qualify to borrow is based on way too many things to include in a single article. And the rules keep changing. Most recently, the government has introduced a financial "stress test" that forces buyers to qualify at a mortgage rate that is at least 2% higher than the rate they will pay.

So once you are ready to actually start shopping, or even months before then, it's a good idea to sit down with an independent mortgage professional who can work through your unique financial situation and will let you know exactly what you can afford to spend on a property.

Regardless of where you are in the home buying process, it's never too early to give me a call! Our goal is to walk you through the process from start to finish, even if that is a matter of years, instead of months. Contact us anytime , we'd love to work with you!

604-862-8080
info@oakandprime.ca
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GDS/TDS Ratios Explained

By Suhk Sohal • April 17, 2025
One of the major qualifiers lenders look at when considering your application for mortgage financing is your debt service ratios. Now, before we get started, if you prefer to have someone walk through these calculations with you, assess your financial situation, and let you know exactly where you stand, let’s connect. There is no use in dusting off the calculator and running the numbers yourself when we can do it for you! However, if you’re someone who likes to know the nitty-gritty of how things work instead of simply accepting that's just the way it is, this article is for you. But be warned, there are a lot of mortgage words and some math ahead; with that out of the way, let’s get started! “Debt servicing” is the measure of your ability to meet all of your financial obligations. There are two ratios that lenders examine to determine whether you can debt service a mortgage. The first is called the “gross debt service” ratio, or GDS, which is the percentage of your monthly household income that covers your housing costs. The second is called the “total debt service” ratio, or TDS, which is the percentage of your monthly household income covering your housing costs and all your other debts. GDS is your income compared to the cost of financing the mortgage, including your proposed mortgage payments (principal and interest), property taxes, and heat (PITH), plus a percentage of your condo fees (if applicable). Here’s how to calculate your GDS. Principal + Interest + Taxes + Heat / Gross Annual Income Your TDS is your income compared to your GDS plus the payments made to service any existing debts. Debts include car loans, line of credit, credit card payments, support payments, student loans, and anywhere else you’re contractually obligated to make payments. Here’s how to calculate your TDS. Principal + Interest + Taxes + Heat + Other Debts / Gross Annual Income With the calculations for those ratios in place, the next step is to understand that each lender has guidelines that outline a maximum GDS/TDS. Exceeding these guidelines will result in your mortgage application being declined, so the lower your GDS/TDS, the better. If you don’t have any outstanding debts, your GDS and TDS will be the same number. This is a good thing! The maximum ratios vary for conventional mortgage financing based on the lender and mortgage product being offered. However, if your mortgage is high ratio and mortgage default insurance is required, the maximum GDS is 39% with a maximum TDS of 44%. So how does this play out in real life? Well, let’s say you’re currently looking to purchase a property with a payment of $1700/mth (PITH), and your total annual household income is $90,000 ($7500/mth). The calculations would be $1700 divided by $7500, which equals 0.227, giving you a gross debt service ratio of 22.7%. A point of clarity here. When calculating the principal and interest portion of the payment, the Government of Canada has instituted a stress test. It requires you to qualify using the government's qualifying rate (which is higher), not the actual contract rate. This is true for both fixed and variable rate mortgages. Now let’s continue with the scenario. Let’s say that in addition to the payments required to service the property, you have a car payment of $300/mth, child support payments of $500/mth, and between your credit cards and line of credit, you’re responsible for another $700/mth. In total, you pay $1500/mth. So when you add in the $1700/mth PITH, you arrive at a total of $3200/mth for all of your financial obligations. $3200 divided by $7500 equals 0.427, giving you a total debt service ratio of 42.7%. Here’s where it gets interesting. Based on your GDS alone, you can easily afford the property. But when you factor in all your other expenses, the TDS exceeds the allowable limit of 42% (for an insured mortgage anyway). So why does this matter? Well, as it stands, you wouldn’t qualify for the mortgage, even though you are likely paying more than $1700/mth in rent. So then, to qualify, it might be as simple as shuffling some of your debt to lower payments. Or maybe you have 10% of the purchase price saved for a downpayment, changing the mortgage structure to 5% down and using the additional 5% to pay out a portion of your debt might be the difference you need to bring it all together. Here’s the thing, as your actual financial situation is most likely different than the one above, working with an independent mortgage professional is the best way to give yourself options. Don’t do this alone. Your best plan is to seek and rely on the advice provided by an experienced independent mortgage professional. While you might secure a handful of mortgages over your lifetime, we do this every day with people just like you. It’s never too early to start the conversation about mortgage qualification. Going over your application and assessing your debt service ratios in detail beforehand gives you the time needed to make the financial moves necessary to put yourself in the best financial position. So if you find yourself questioning what you can afford or if you want to discuss your GDS/TDS ratios to understand the mortgage process a little better, please get in touch. It would be a pleasure to work with you, we can get a preapproval started right away.

Should You Get Pre-approved For A Mortgage?

By Suhk Sohal • April 3, 2025
If you’re thinking about buying a property, but you’re not sure where to start, you’ve come to the right place! Let’s discuss how getting pre-approved is one of the first steps in your home buying journey. Just like you wouldn’t go into a restaurant without knowing if you have enough money to buy your meal, it’s not a good idea to be shopping for a home without an understanding of how much you can afford. You can browse MLS from your couch all you want beforehand, but when you’re ready to start looking at properties with a real estate agent, you need a pre-approval. Now, as there may be some confusion around exactly what a pre-approval does and doesn’t do, let’s discuss it in detail. First of all, a pre-approval is not magic, and it’s not binding. A pre-approval is not a contract that will guarantee mortgage financing despite changes to your financial situation. Instead, a pre-approval is simply the first look at your overall financial health that will point you in the right direction before you’re ready to apply for a mortgage. Said in another way, a pre-approval is a map that gives you the plan to secure an actual approval. After going through the pre-approval process, you’ll know how to qualify for a mortgage and at what amount. When considering your mortgage application, lenders look at your income, credit history, assets vs liabilities, and the property itself. Working through a pre-approval will cover all these areas and will uncover any major obstacles that might be in your way of securing financing. The best time to secure a pre-approval is as soon as possible; it’s never a bad idea to have a plan. Here are a few of the obstacles that a pre-approval can uncover: You’ve recently changed jobs, and you’re still on probation Your income relies heavily on extra shifts or commissions You’re unaware of factual mistakes or collections on your credit report You don’t have an established credit profile You don’t have enough money saved for a downpayment Additional debt is lowering the amount you qualify for Really anything you don't know that you don't know Even if you believe you have all your ducks in a row, working through the pre-approval process with an independent mortgage professional will ensure you have the best chance of securing a final approval. As a point of clarity, a pre-approval is not the same as a pre-qualification. This is not typing a few things into a website, calculating some numbers, and thinking you’re all set. A pre-approval includes providing your financial information, looking at your credit report, discussing a plan for securing mortgage financing with a mortgage professional, and even submitting documents ahead of time. Mortgage financing can be a daunting process; it doesn’t have to be. Having a plan in place and doing as much as you can beforehand is essential to ensuring a smooth home buying experience. As there is no cost for getting a mortgage pre-approval, there is absolutely no risk. Consider starting the process right now! If you’d like to walk through your financial situation and get pre-approved for a mortgage, let’s talk. It would be a pleasure to work with you!
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