[CuriousReader]

I am starting to look at buying my first place and I am wondering about the mortgage amount that I would qualify for. I know that the rule of thumb would be based on the GDS and TDS ratio, but I think I am not going to get a place that I would consider be good enough within those ratios.

I am just wondering how realistic it is in trying to get a mortgage beyond the GDS and TDS ratio level?

I am considering this because I am expecting/hoping to be able to make >25% downpayment, hence hopefully the bank/lender will see that since I have invested more than usual through downpayment, may be they are willing to give me more mortgage than the usual amount.

Affordability should be taken out of the question here:

In terms of monthly payment, I think I will be able to afford the monthly costs (mortgage, taxes, etc) even though it will be higher than the "normal" GDS and TDS ratio because I will have someone rent a room from me, hence lowering my own expense. I know some of you will argue "you shouldnt rely on that extra income", but let's just say that it's 100% certainty that I'll have someone who will pay rent to me. I think banks/lenders wont care about whether someone will pay rent to me when determining my mortgage amount - but it will make me able to afford beyond the normal GDS/TDS ratio.

What do you think?

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  Can I get a higher mortgage amount, beyond normal GDS/TDS ratio because of higher dowpayment percentage?

 

[OhGreatGuru]

You are mixing up 2 questions.

Can I get a higher mortgage amount, beyond normal GDS/TDS ratio because of higher dowpayment percentage?

Probably not. These ratios are both calculated independent of the downpayment amount.

Will the lending institution take into account possible rental income?

No. They consider this too uncertain. You also get into possible illegal zoning issues.

 

[CuriousReader]

Thanks for the reply. I was actually only asking about whether lender will be willing to give me more because I have bigger downpayment.

About the rental income, I know lender wont consider this, I was just giving explanation on why my calculation show that I can afford taking more mortgage than the ratios.

About higher mortgage than the ratios, let just say consider the situation where based on the ratios, I am only qualified for $150k mortgage. I have $100k for downpayment, and I am looking to buy $300k house. This mean I actually need $200k mortgage, wouldnt the lender be willing to give me more given that I already "own" 30% of the house?

Another question:
Does credit card balances count toward GDS/TDS ? If it does, how are they calculated? Because credit card balance fluctuates depend on my spending, and that mean I could make it look better by simply using debit rather than credit? (The only reason I am using credit card is because of the points/rewards)

 

[Shayne]

You don't mention how your credit is. If you have 680+ you can go as high as 44% for GDS/TDS. Your credit cards have to be serviced at 3% of the outstanding balance. If you can show that they are paid off they will not be used in the debt servicing calculations. If you pay off any other outstanding debt it will no be used in the ratios.

TDCT may let you go a little above the 44% ratio.

You may be able to find a lender through a broker who will go up to 50% TDS, but you will also pay a premium on the rate.

If you had no monthly debt obligations you should qualify for your $300,000 home with $100K down, making $36K per year.

I suggest you find an experienced broker in your area and discuss. Sometimes the ratios used in online calculators are a little out of line of what is possible in the real world.

Good luck!

 

[CuriousReader]

If you had no monthly debt obligations you should qualify for your $300,000 home with $100K down, making $36K per year.

What exactly would be considered "monthly" debt obligations?
My monthly expenses that are constant are just the normal cable bills and rent. I dont have other loans. Also the credit card balance of course, but that's always paid in full every month - again, because the only reason I am using credit card is for the reward, I dont actually need a "credit" for any of my expenses.

 

[Shayne]

Sounds like you have no debt, which means you have no debt obligations.

Again, you should qualify if you are making $36k. I did estimate taxes at $200 and assumed you were not buying a condo.

Chat with a broker and get your place.

 

[Dr_V]

Anecdotally, when my wife and I were looking to buy a house, we stuck to a range of about ~2.5 times our annual gross income (and were adamant that we be able to put down a 25% downpayment).

The bank approved us for a mortgage that would have allowed us to buy a house around ~5 times our annual gross income. Suffice to say, I'm really glad that we didn't.

Excercising some frugality with respect to our house purchase has ensured that we're not "house poor", and are able to afford a few other luxuries in life (e.g., a second car, a trip every now and then, and so on). Also, it's not a bad idea to reserve some money in case disaster strikes.

 

[Shayne]

I agree 100%, but everyone's situation is different. If the OP is guaranteed X number of dollars of rent every month and is fully aware of any additional cost that may pop up and the interest that may be paid over the life of the mortgage then he is making an educated choice.

I have worked with couple in the past who were professionally employed and were guaranteed to have their income double in the next 5 years. If they want to buy more than a starter home and live lean for a couple of years that is their choice. It is all in the education of people!

 

[CuriousReader]

I would consider myself very frugal - one thing that I would consider luxury in my expenses would be car that I have for convenience, no loan, but insurance+gas+maintenance is quite some expense too, but I take it as a luxury that I can afford. Apart from that, just the ocassional eating out, probably twice a year fancy dinner for celebration, etc ... I dont shop (or rather, barely shop, I'll get something if it's a good deal with big discount once-twice a year), and my expenses each month can be categorized to: rent, insurance, cable/wireless, and food. I try to brown bag lunch as much as possible.

If I take a mortgage 3x my gross annual income, I think it would just be a little short of the price range I am looking at, so I probably need to get more than 3x but not much more, like 3.5x.

I can of course get a place with just 2.5x gross annual income mortgage or with the normal GDS/TDS ratio - but I would think buying a place at that price range would be a bad idea (resale value would be bad, location probably wouldnt be ideal, etc etc). So I would rather take more mortgage now to get a better place for myself + more resale value down the road (long term).

In terms of affordability, I am sure I can afford it on my own albeit it would mean little or no saving if I were to pay the mortagage + all housing costs myself. The rent that I am expecting will make it possible for me to have savings every month. And for personal reasons, that rent is guaranteed to come

So at this point, I am just exploring opinions of whether I can get mortgage amount that's higher the "normal" amount based on online calculators etc (because those online calculators not giving me enough mortgage). I have other things I need to deal with right now, and will seriously be hunting for mortgages / places start of next year.

 

[Shayne]

Again, based on the information you have provided you will have to problems qualifying for the mortgage you want and the best rates.

When you are about 3 months away from a purchase ensure that you lock a rate in for 120 days and it will protect you from any spike in rate.

 

[CuriousReader]

Btw ... if the house is my principal residence and I am getting rental income to help with my mortgage - do I need to report this as an income? If treat it as an income, wouldnt my mortgage be counted as expense?

 

[Shayne]

Btw ... if the house is my principal residence and I am getting rental income to help with my mortgage - do I need to report this as an income? If treat it as an income, wouldnt my mortgage be counted as expense?

Yes and yes. Talk to an accountant for any more specifics around it.