Pre-qualifying yourself for a mortgage includes working with your personal Lender to develop an estimate of what you can actually afford. These calculations are referred to as your Total Debt Service Ratio (TDS) and your Gross Debt Service Ratio (GDS). To determine your Gross Debt Service ratio, your Lender will calculate your monthly mortgage payment, your property taxes, condo fees (if applicable) and heating expenses per month and divides this number by your monthly income. The Gross Debt Service ratio is traditionally preferred to be under 30%.

As an example, your anticipated mortgage monthly payment is $1,200.00 and your property taxes will be $150.00 and you expect heating costs to average $400.00 a month which is a total of $1,750.00 in expenses. If your income is $6,000.00 and you divide your expenses from that it leaves you at 29% which would be under the required threshold for GDS.

Your Total Debt Servicing Ratio includes all debts in that calculation. You would need to factor in any vehicle loans, lines of credit, credit card balances and any other loans or debts that you owe. The Total Debt Servicing Ratio percentages should be less than 40% ideally to most Lenders. Your lender should be able to work with you to cultivate a unique plan that you can utilize to achieve the financing you need.

A mortgage pre-approval will have an effect on your credit score as it is a hard inquiry for credit. Obtaining a pre-approval for a mortgage indicates that your Lender and the financial institution has agreed to lend you the funds to purchase a home, as well as an agreed upon interest rate. The pre-approval interest rate is important as house hunting can take a few weeks or months and the locked in rate can benefit you.

Working with your Lender, you will be able to purchase a home. Knowing the process of borrowing for your mortgage will empower you to make more confident decisions for this very large and important purchase.