The first step in buying a house is determining your budget and what your allowable amount will be for qualifying.
The amount you can qualify for depends on your credit history and your ratios of debt to income (TDS and GDS ratios.) The normal maximum TDS & GDS ratios are 42% and 39% respectively, but for those with exceptional credit, the mortgage qualification process only looks at the TDS ratio, and relaxes it to as much as 44%.
GDS Ratio: Your Gross Debt Service Ratio is your monthly housing costs (mortgage, heating, half of condo fees, property taxes) divided by your income.
TDS Ratio: Your Total Debt Service Ratio is all of your monthly obligations divided by your income.
With ever changing mortgage rules the latest change is the stress test which has borrowers qualifying at the bench mark rate to ensure if rates increase they can handle the extra payment requirements. Today the bench mark rate is set at 5.34%. That can affect a client who would qualify for a mortgage for $310,000 at the current rate 3.24% with a $60,000 income. Now with the 5.34% stress test that same client only qualifies for $260,000.
It is very important with today’s changing rules that you speak with an expert who can assist you with your pre-approval to make sure you are ready when you find your dream home.