When considering buying a house, the process of acquiring a mortgage can be the most complicated and confusing piece to think about. Let’s walk through it together to gain some clarity and peace of mind!
The first thing to know is that, as the Government of Canada website states, your total monthly housing cost should not be more than 39% of your gross household income to qualify for a mortgage. The components that factor into the total monthly housing costs are:
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Your projected mortgage payments
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The property taxes on the home you are considering
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Heating costs
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Condo fees (if applicable)
If you find a property you are interested in, and the monthly costs will be more than 39% of your household’s income, you have less of a chance of being approved for a mortgage, and you will be taking on more financial risk if that is the case and you are approved.
However, doing these calculations yourself can also feel like a lot. Most banks will run what is known as a “stress test”. This will show whether or not you will be able to pay a mortgage at current interest rates, and, if you pass, it will make you appear more credible to lenders.
Speaking of lenders, it may be helpful to take a peek behind the curtain to understand the factors they consider when deciding whether or not to approve a mortgage application.
Obviously, they take into account your income and your credit score, your expenses- which include all living costs, your existing debts and loans that you are paying off, and your amortization period. The word “amortization” refers to the projected length of time it would take you to fully pay off a mortgage based on your income and current expenses. Of course, the banks are looking out for their best interest when deciding who to approve, but these criteria also protect you as a buyer.
It can be difficult to take into account all of these factors and how they interact with each other when looking to buy a house. With help from banking experts and mortgage specialists, you can figure out the best time for you to buy, and which property will suit your financial needs best.