You cant live in your car

Jackie Woodward // Mortgage Broker // TMG
Phone: 780.433.8412 // Visit: mortgagegirl.ca // Email: info@mortgagegirl.ca
You can’t live
in your car

When it comes to qualifying for a mortgage, the current
debts you have affects the mortgage amount you can qualify
for. I often see buyers who have worked hard to maintain a
good credit score and saved up the downpayment. Then I
have to tell them they don’t qualify at the price they want to
buy in due to the car payment they have.
It’s not really something any potential homebuyer wants to
hear, so I want to go over the basics of mortgage qualifying
which you should think about before taking on any new
debt before you consider buying a home.
You can’t live in your car

Qualifying Ratios
When calculating a mortgage that is affordable for you, we
use two formulas and apply them to your specific financial
profile. These are the key terms you need to keep in mind
when you start preparing for the mortgage approval process.

GDS Ratio – Gross Debt Service Ratio
These are the costs attributed to housing such as mortgage
payments, property taxes, heat, and condo fees if applicable and
cannot take up more than 32 -35% of your gross annual income
depending on your credit score and the lender.
There are exceptions though they may only be available to you
through an alternative lender which means you may have to pay a
higher interest rate with more downpayment.
What is included in your gross annual income varies which may
require a discussion with a mortgage professional.

TDS Ratio – Total Debt Service Ratio
The potential housing costs as mentioned above PLUS any
existing debt payments you already have cannot total more
than 40 -44% of your gross annual income, again,
depending on your credit score and the lender.
This is where a high car payment or any other debt
obligation can reduce the mortgage amount you qualify for.
The more “room” those personal debt payments take up
reduces the amount left to cover housing costs.

When you have less to cover housing costs, your buying
power is reduced to properties that ﬁt within your mortgage
and downpayment budget.
To put it into perspective, here is an example of how a
vehicle payment can affect your mortgage qualifying ratios;
This example applies to a potential mortgage borrower who
earns $50,000 gross income per year, owes $5000 in credit card
balances who needs a vehicle in the near future:

Scenario 1: borrow a family vehicle, use public
transportation, or buy a vehicle in cash so a monthly
payment is not involved;
Maximum mortgage amount qualiﬁed for: $233,186
Monthly mortgage payment: $1,109*
* Calculations based on 3.04% 5-year fixed rate, 25-year amortization, $1500 per year property
taxes, $100 per month heating costs, and no condo fees.

Scenario 2: buy a vehicle with a $350 per month payment
Monthly mortgage payment: $992*

Scenario 3: buy a vehicle with a $500 per month payment
Monthly mortgage payment: $792*

Simply, the higher your income amount, the less effect a
small vehicle payment will have on your mortgage
affordability calculations. The best way to maximize your
mortgage affordability is to reduce debt.
There a few other tips I want to pass on to help you qualify
for a mortgage solution that ﬁts your needs.

Timing is key and if you’re trying to qualify for a mortgage
now or in the near future, think twice before you take on
any type of new debt. This includes credit card debt, vehicle
loans, lines of credit or “don’t pay for a year”.
If it is a necessary expenditure, try to delay it until after
you’ve completed your mortgage ﬁnancing.

If you can’t avoid taking on a new debt while trying to
qualify for a mortgage at the same time, try to spread out
the time to pay it off for as long as you can to keep the
payments low. This applies more speciﬁcally to vehicle loans
as you can always pay extra over and above the regular
payment amount if you have the funds available.

If you have existing debts that you’ve been working to pay
off and you want to apply for a mortgage now, team up with
an experienced mortgage professional who can help you
restructure your debt in a way that will help you maximize
your mortgage affordability.

It’s kind of a double-edged sword because while you need
debt to build credit and maintain a good credit rating, too
much debt can affect you negatively. So be sure to keep a
close eye on your debt levels to ensure they’re helping you
improve your ﬁnancing proﬁle rather than to hinder it.
If you want to calculate the maximum mortgage amount
you can qualify for and see how a debt can affect it, contact a
trusted mortgage professional or plug the numbers into an
online calculator though be sure it’s applicable to mortgages
in Canada.

Mortgage Questions?
Don’t hesitate to contact the Mortgagegirl
Phone: 780-433.8412
Email: info@mortgagegirl.ca
Visit: www.mortgagegirl.ca
Like: www.Facebook.com/mortgagegirl.ca
Follow @mortgagegirlca

You cant live in your car

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