Before buying a house, borrowers consider many factors: how much down payment they need to pay, which location is good, ideal credit scores, interest rates, and how much income would be required to get approval for the mortgage. For income and debts, they are unable to paint a clear picture, what lenders are looking for and how they take debts and income into account. In this blog, lets explore some important factors like GDS and TDS Ratio and how they are helpful to get approval for mortgage from Traditional Lenders.
What is Gross Debt Service Ratio-
GDS means how much income you are needed to pay all your housing costs such as Principal balance, interest, property taxes and heat (PITH). If you are buying a condo, you would be required to include 50% condominium fees. The industry standard for GDS is 35%; it is a ratio that compares a person’s or a family’s debt to their disposable income and how much amount of debt you owe for every dollar of your income?
What is Total Debt Service Ratio-
TDS means how much income you need to pay all your housing costs (PITH) and other debts like Credit card loans, Car loan’s payments, Student, and any other loans. The industry standard for TDS is 42%. For further information, contact MB Mortgages Inc.
For example, Jeremy wants to buy a house, and his annual salary is $90,000, and the monthly gross income is $7,500. He anticipates his monthly mortgage payment would be $2000, heat $75, credit card monthly payment $300 and car loan payment $475. Based on this scenario, his GDS would be- 2075/7500= 27.67% (Monthly mortgage payment + heat/monthly income*100), whereas TDS would be -2850/7500=38% (Monthly mortgage payment + heat+ credit card monthly payment +car loan payment/monthly income*100).
As you can see that Jeremy’s GDS is 27.67%, and TDS is 38%, which is less than the industry standards 35% and 42%, respectively. His GDS and TDS are less than the Industry Standard, which is plus point for him. However, If his GDS and TDS are higher than the industry standard, lenders may not like it. Consequently, it indicates Jeremy owes more debt than his income, and therefore, lenders would consider him a high-risk candidate.
How to lower down GDS and TDS ratios-
You can decrease your TDS ratio by paying off your other debts such as credit card loan payments or student loans etc. If you pay them off, your credit score will surge up, and you can get a mortgage from Traditional lenders (conditions apply, call for details).
On the contrary, you can lower the GDS ratio by increasing your down payment or purchasing a less expensive home, which would decrease your monthly mortgage payments, reduce heating and property tax costs. Also, if you include Child Care benefit and Rental income, they are helpful in lowering GDS and TDS ratio.
To sum up, Lenders take GDS and TDS into consideration; however, the situation gets varied from lender to lender. They want to know whether your income can cover all mortgage expenses and other expenses or not. If your GDS and TDS do not stand between the industry standard, this is not the end of the world, and these ratios do not tell the whole story. If you have high GDS and TDS problem, contact MB Mortgages today and get an idea how you can get approval for the mortgage with best interest rates.
We believe that , now you have a clear picture of how these ratios work in the real world. If you still have any queries or need assistance regarding securing a mortgage or have challenging credit score or high GDS and TDS, we can help you based on your situation and can walk you through the whole process prudently and diligently.
Why choose us-
As a leading Mortgage Brokerage, we have strong relations with multiple banks and numerous lenders. We work with Canada’s leading lenders to provide you a mortgage solution that fits your budget. Our mortgage and financing process is amazingly simple, we represent you and match you with the best suited mortgage as per your needs. This way we can guide you through this complicated process with our years of mortgage financing experience.
• We are dedicated and professional Accredited Mortgage Brokers in GTA.
• We are well trained and have experience in the mortgage financing field more than 10 years.
• We can shop around with different lenders to get you the best possible mortgage rates and conditions as well.
• We have different options for different income and credit level with access to number of private lenders to suit borrower’s needs.
We are a professional mortgage broker in GTA. We can help you secure a mortgage with best mortgage interest rates. We are located at 2 County Court Blvd., Suite # 438, Brampton, ON L6W 3W8. Call MB Mortgages Inc. today at 905-458-6929/416-939-7131 for your queries or you can email us at: [email protected] or you can visit our website at www.mbmortgages.ca
The information provided in this blog post is intended to provide general information. You should consult with a mortgage professional to fully determine the scope of your situation. MB Mortgages shall not be held liable from usage of the information provided on this page. Individual situation may vary.