Welcome to Homebuyer's School
brought to you by Brookfield Residential.
Hi everyone and welcome to another edition of Homebuyer's School. Today I'm joined by
Mujtaba Syed, a Mobile Mortgage Specialist with TD Canada Trust. And today the
question we're gonna answer is -and one that's very, very I guess, a very popular
question is, "How much can I actually get pre-approved for a mortgage?" So Mo, how
much, if I go right now to talk to you or a mortgage specialist, what's the maximum
I can get pre-approved?
That's a really good question Karl, so technically what
we look at is we'd look at a bunch of different factors when we're looking at
the amount that you can get pre-approved for. The most important thing we do
look at your credit score, now a credit worthiness is an important part of the
approval process, so there are certain criterias and guidelines we like
your credit to be at to see maximum - minimum approval amounts. I'll try to
explain a little bit more.
So if your Beacon score is technically
above 680 where we want to be at,
we want your TDS, which kind of
stands for Total Debt Ratio. So a total
debt ratio is what we take, is we take
your income, we take your monthly
obligations, plus the new monthly
obligations of your home you're looking
at buying, which is going to be your
mortgage payment, property taxes,
utilities. We want it to be around 44% of
your income, and the reason why the banks
want to be able to do that is we want
the extra - 56% to be available
just in case you might need it. We don't want you to be house poor for
sure. So if you're Beacon score is above 680 we can go to a maximum 44% of
your TDS. But unfortunately if it's lower
than 680, we want to be at 42% of TDS
and these are just bank account and guidelines that we take a look at.
We also look at something called GDS which is your Gross Debt Ratio which is just
technically the housing cost we talked about. So the housing cost once
again is just your mortgage payments, your property taxes, and your utilities
that technically could be part of the home. We want that to be once again if
your Beacon scores around 680, we want
that to be around 39% which is the maximum.
Now, you know if your Beacon scores less than 680, we unfortunately
can't go more past 35% once again, just
bank account of rules to kind of see
exactly how much you get pre-approved for.
When you're talking about, so let's step back a bit here.
What is a Beacon score? Just for those who don't understand.
Absolutely, so a Beacon score is a credit score and it's
a whole bunch of different things that combine into making like a "risk
rating" for the bank. So what we do we can look through a whole bunch of different
situations. We could look at how long
you've opened your credit bureau,
what kind of debts you have on your
credit bureau, how you make your payments,
if you switch your job frequently we
want to be able to show stability. So if
you switch jobs often or you
move addresses often, that could actually
result in a lower score, or we want to show
stability, we want to show comfort so
technically a score where I like to explain to my clients is just a
statistic. So once when we say someone has a beacon score of 680 it just means
to the bank that 1 out of 680 people were most likely default on a loan
compared to someone who might have a beacon score of 700, so 1 out of 700 is
less riskier to the bank compared to 1 out of 680 or even 1 out of 600.
So that's how the bank's look at it. It is a little bit more complicated, a
little complex, but it's just a brief idea of who you are as a person
technically, how you come across to the bank.
Does a previous mortgage affect your Beacon score as well?
Absolutely yeah. A previous mortgage
could definitely affect and depending on your repayment, how you
made the payments, the amount, it could definitely impact in a positive way
or it could impact in a negative way.
Does a- would it would you recommend
then having let's say you know, let's say you're in the process of selling a home
and looking to buy another home, either another home or transitioning out of
that, in your opinion would it be better to make sure you sell your home first or it
doesn't really matter?
Yeah, to me I don't think it really
matters because when we actually look at the pre-approval process we
can factor all that into the application. We can look at what makes the most
sense for you. If it makes the most sense to you because you feel like
selling based on your financial obligations, we can look into that. We can
also look in getting your pre-approved or approved for a mortgage by currently
holding that property as well. A lot of people think they want to sell but then
decide that they might want to turn into an investment property or rental
property, there are many, many different ways we can work on to the
application, there is no just one way to kind of do that.
One question I always wanted to know is "should I max out in terms of how much I
can get pre-approved for?"
Yeah, so once again it just depends on where
your comfort level is. If you think that that's your dream home and you're very
comfortable with it and you see yourself moving in there and living in there for
a very long time you might consider buying that house, it might be a little
bit close for maximum living, but you might know that your income potential is
just gonna keep on getting more and more, and that's something that definitely you
could speak to your specialist about. I always tell my clients as long as you're
comfortable with the payments make sure you do the monthly budget, those monthly
obligations, and see exactly where that fits in based on your lifestyle. If that
makes sense for you based on your lifestyle, it's a comfortable payment,
you don't feel you're stretched or you don't feel that it's a little
bit too much for you, that's the ideal place to be in my opinion.
Great, do you have anything else to add?
No I think that's technically it. Once again we
just want to reiterate that, just really sit down with your specialist, talk about
your obligations, talk about your financial situation, talk about where you
see yourself in the future, all that could have a really big impact on your
decisions today. We want to be able to look into the future and see does this
make sense in the future as well, not just today.
Perfect, well thank you very much Mo, thank you very much everyone for joining
us and we'll catch you next time.
That's another edition of Homebuyer's School.
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