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Canucks3322
11-05-2011, 01:05 AM
I'm playing around with a couple of online mortgage affordability calculators and I got a question about my credit card debt...it says "monthly debt payments" and on one of them, TD, it says calculate it as 3% of the balance every month, another one just says payments, well my payments are interest only (Scotia LOC) and another credit card is interest + 10bucks a month......which number should I use and what do all the small banks use when approving a mortgage? It makes a big difference in the amount I get approved for....?

el-nino
11-05-2011, 11:02 AM
Hey Canucks3322,
For a safe bet, I would use interest only on the LOC and 3% on the CC.
Most lenders will use the minimum payment as long as you can prove it.
I hope that helps.

Canucks3322
11-05-2011, 03:48 PM
Hmmm, interesting...ya that helps a bit...but even my TD Emerald Card is $10 plus interest per month.

Anyways the reason I ask is because I bought a new in the summer that cost me $25,000. It's a Nissan Juke and Nissan was not offering anything decent in terms of finance rates, it was 7.79%....so what I did was put most of it on my credit card, which I am keep getting balance transfer offers for anywhere from 0%-2.99% up until next year around July now which is when I plan to apply for a mortgage (the normal rate for my card is 8.5%)...so now I'm thinking hmmm I'm screwed if they determine my mortgage application based on 3% of that $25,000 balance to determine my debt income ratio....and I'm trying to decide if I have to trade in my car for something on a low monthly payment loan or is this all irrelevant? :dunno:

PS...this is using the TD online calculator though, I'm aware that most smalller lenders are much more lenient anyways and the TD one is super conservative, I just wanna be on the safe side

benyl
11-05-2011, 10:08 PM
Should have bought the house before buying a car.

The rates of interest don't matter. it is the balance and the payment.

J-hop
11-06-2011, 02:40 PM
I always thought carrying a balance over on a CC kills your credit. According to an american site i just googled, carrying a balance of over 30% of your available credit on that card will kill your credit rating.

Canucks3322
11-06-2011, 02:43 PM
Sighhh...ya I know, big stupid move on my part, but you live and you learn. Worse case scenario for me though is that I just end up selling or trading in the Juke and taking it up the ass on depreciation before I get a mortgage...or just work really hard and sacrifice for the next year to pay off most of the $25,000 :(

lint
11-06-2011, 02:56 PM
Originally posted by Canucks3322
Sighhh...ya I know, big stupid move on my part, but you live and you learn. Worse case scenario for me though is that I just end up selling or trading in the Juke and taking it up the ass on depreciation before I get a mortgage...or just work really hard and sacrifice for the next year to pay off most of the $25,000 :(

you're going to work hard and sacrifice in order to pay off most of the $25K car that is depreciating, instead selling the car and putting that money towards a down payment?

Zewind
11-06-2011, 03:37 PM
Debt to Income Ratio is the key.

The mortgage calculators arent very good IMO. We have a mortgage broker sponsor if you want to pound out some hard numbers.

Canucks3322
11-06-2011, 06:28 PM
Originally posted by lint


you're going to work hard and sacrifice in order to pay off most of the $25K car that is depreciating, instead selling the car and putting that money towards a down payment?

I know that sounds dumb too...but I'm not one of these people who believe in sacrificing everything in life and living like a hermit in order to save up every penny to afford a huge fancy house. I believe in enjoying my life along the way too...that and it might be better to wait till I get married first which isn't that far down the road...buying real estate has never really been that much of a priority for me, I work for the government and have the golden handcuffs pension, barring lay-offs or me getting fired, I'm set for life as far as continuing a modest lifestyle...the reason why I want to buy a house now is just as a safety net, put my extra cash into a hard asset...but it's not a top priority in my life.

PS...when I say work hard and sacrifice in my other post, I meant work hard and sacrifice so that I can pay off the car or most of it ON TOP of having a down payment

benyl
11-06-2011, 09:47 PM
You say the house is a safety net, yet you bought a $25K car on credit. That isn't very safe. I am not following your logic.

Canucks3322
11-06-2011, 09:54 PM
Depends on what you mean by safe.....I make enough to afford a $250,000 to $300,000 home on my own AND afford a $25,000 car no problem...I think anyone here would agree with that. The issue I'm just having is that I have that $25,000 balance on my credit line instead of a bank loan with a nice little monthly payment plan like most people :dunno: Which I am really worried will get my mortgage application denied that's all....it's not a big issue, I'll either trade my car in for a low monthly payment car or a cheap car or no car at all when I apply....you sound like my mom lol:rofl:

lint
11-06-2011, 10:24 PM
if your mortgage application might be denied, I don't think everyone agrees that you can afford a $300k house AND a $25k car

ercchry
11-06-2011, 10:28 PM
call a broker and get pre-approved? :dunno: :nut:

Canucks3322
11-06-2011, 10:29 PM
^ alright, so what you're basically telling me is that I can't afford a $300,000 home and a $25,000 car at the same time? :confused:

Maybe my original question should be worded...how can I afford a $300,000 home and a $25,000 auto debt at the same time? :dunno:

ercchry
11-06-2011, 10:31 PM
35% down will guarantee your $300k home

tpurcell4
11-08-2011, 12:49 PM
Hey,

Just to throw in some hard numbers for you to work with, because you are being told you can't afford the car and house, yet, unless I missed it, it doesn't look like you mentioned your income.

In general for qualifying we use a 3% repayment on all trade lines, but if you have set payment terms (such as a car loan) we just use what your monthly payment is.

Credit cards are always a 3% repayment to be used (unless you are going through Royal Bank for example where they use 5% on all trades and assume everything is maxed out).

Unsecured lines of credit we typically use 1.5%-3% repayment on the balance unless you can prove you have interest only payments. (using interest only is an exception we must ask for, and most lenders will allow it, but not all, so if you need to use the interest only, it will will narrow down where you mortgage can go. You will still get best rates, we just can't go to National Bank for example as they are hard set on 1.5% repayment).

But don't assume that you cannot afford a mortgage with a car loan, as many are able to, it is completely based on your income. I have a lease payment, mortgage payment, etc... and I still manage to put more than 10% of my income towards a savings program, plus additional towards investments, and I am a single guy.

Payments that are not factored into the qualifying process are:
- Insurance (car/life/renters/etc)
- Food
- Investments
- Gas and other expences
- etc.....

We also use your pre-tax income (gross income) for qualifying, so that also helps.

With that said, what we can qualify you for and what you can afford based on your lifestyle are two completely separate things. I highly recommend you put together a budget and figure out what you are comfortable with for monthly payments, and don't forget to factor in Property taxes ($150/month on $300K), utilities ($200-$300/month), cable/internet/phone (about $90-140/month), furnishing the home (???/month), etc...

PM me and we can dicuss further and I can send you a budgeting worksheet that will help you to think of other expenses to include in your budget.

Hope this helps, and don't feel too discouraged. Because you never know for sure until you ask!

max_boost
11-08-2011, 01:03 PM
Canuck fan, how much do you make? Then I'll tell you whether you can afford that $300K house and $25K car.

Canucks3322
11-09-2011, 06:34 PM
maxboost....I make $70,000 a year and I been at my job for 6 years...no credit problems, I can get approved for 0% financing promotions on cars no problem...

The original question is irrelevant now though as my Juke is conditionally sold (for very close to what I paid for it)....my question now is am I better off buying a car for say, $10,000 on my line of credit and having my debt service calculated as 3% of that ($300) or am I better off buying a $20,000 car, say a Hyundai Veloster, and paying $285 a month???

Cos
11-09-2011, 06:38 PM
Originally posted by Canucks3322
maxboost....I make $70,000 a year and I been at my job for 6 years...no credit problems, I can get approved for 0% financing promotions on cars no problem...

The original question is irrelevant now though as my Juke is conditionally sold (for very close to what I paid for it)....my question now is am I better off buying a car for say, $10,000 on my line of credit and having my debt service calculated as 3% of that ($300) or am I better off buying a $20,000 car, say a Hyundai Veloster, and paying $285 a month???

Not sure why you are having such a hard time. I owed 20k on my truck, had 20k down and bought my place for 280,000. I was making 78,000 at the time.

edit: just to note I dont have any other debt. Car loan then mortgage. No students loans, no loc, no cc.

max_boost
11-09-2011, 06:51 PM
$70K is good. You should have no problems. Talk to a broker.

Canucks3322
11-09-2011, 08:01 PM
Ya ya thats what ill do...

Canucks3322
11-12-2011, 03:38 PM
Originally posted by tpurcell4

In general for qualifying we use a 3% repayment on all trade lines, but if you have set payment terms (such as a car loan) we just use what your monthly payment is.

Credit cards are always a 3% repayment to be used (unless you are going through Royal Bank for example where they use 5% on all trades and assume everything is maxed out).

Unsecured lines of credit we typically use 1.5%-3% repayment on the balance unless you can prove you have interest only payments. (using interest only is an exception we must ask for, and most lenders will allow it, but not all, so if you need to use the interest only, it will will narrow down where you mortgage can go. You will still get best rates, we just can't go to National Bank for example as they are hard set on 1.5% repayment).



This is actually the exact info I was looking for, thanks man!

So basically, I wanna clear all my credit card debt and move it to my unsecured (interest only payments) line of credit and I should be fine in terms of my debt income ratio...that's all i wanted to know lol By the time I apply, that $25,000 I owe should be down to $15,000 so for my monthly debt service number it'll be the interest payment on the $15,000 ($81, 15,000*0.065/12) instead of the 3% on the $15,000 (which is HUGE, $450), correct? or like you say with National, only 1.5%...

I'm curious to know though, why do the small banks always offer such low rates and the big banks always post such high rates and have such stringent screening processes, don't they want the business??? Like what is the reason for this, is it because they want to target higher quality borrowers? When I look at those mortgage rate tables, the big banks always post like 1-2% higher rates, why on earth would anyone in their right mind want to even apply with them??

Cos
11-12-2011, 03:46 PM
Originally posted by Canucks3322



So basically, I wanna clear all my credit card debt and move it to my unsecured (interest only payments) line of credit and I should be fine in terms of my debt income ratio...


So basically you should pay off your other debt obligations. I dont mean to be a dick but this is how I see it:

- Decent amount of credit debt
- Car debt
- Lower income (to be servicing that much debt).

You have to 'move' your money around just to make sure you qualify for a house. Personally, you arent going to make it if you have to do that.

Fuck my house price has slipped 20% in this last year again. What is your rush?



Originally posted by Canucks3322

I'm curious to know though, why do the small banks always offer such low rates and the big banks always post such high rates and have such stringent screening processes, don't they want the business??? Like what is the reason for this, is it because they want to target higher quality borrowers? When I look at those mortgage rate tables, the big banks always post like 1-2% higher rates, why on earth would anyone in their right mind want to even apply with them??

Their risk tolerance is lower. They dont want people who cant afford it or may default. I probably wont be able to go with a bank until I have almost 25 - 50% of my mortgage paid off.

Canucks3322
11-12-2011, 04:30 PM
Originally posted by Cos


Fuck my house price has slipped 20% in this last year again. What is your rush?


Good question....something I should really think about I guess....

One thing I should mention though is that I am applying for this mortgage on my own even though my gf (who I will very likely marry) will be living with me and paying half the mortgage...the reason for this is because her credit is so bad that it would have a no or negative effect on my application...and I have read that you can't include "renters" income on your application, as in it doesn't affect how much they will lend you...

tpurcell4
11-16-2011, 03:26 PM
Originally posted by Cos

Their risk tolerance is lower. They dont want people who cant afford it or may default. I probably wont be able to go with a bank until I have almost 25 - 50% of my mortgage paid off.

Originally posted by Canucks3322

I'm curious to know though, why do the small banks always offer such low rates and the big banks always post such high rates and have such stringent screening processes, don't they want the business??? Like what is the reason for this, is it because they want to target higher quality borrowers? When I look at those mortgage rate tables, the big banks always post like 1-2% higher rates, why on earth would anyone in their right mind want to even apply with them??

This is an excellent question and if there are any bank employees who would like to give a more accurate response as to why this is, please do.

What I do know is, Banks do and have for a long time offered a range of rates. The posted rate is what they typically advertise to the public, yet they also offer discounted rates through brokers. With any major bank, they give us a spread of rate which we can offer (similar to if you were to go to the branch). They lead with their posted rate for those who really don't know better. They offer their ceiling discounted rate for those who know better than to just accept the posted rate, and they have a floor rate which is usually 0.25%-0.50% less than the ceiling rate for those willing to work for it. The smaller banks (or non-bank lenders) for simplicity sake only offer this floor rate.

As far as qualifying tolerances go, every bank and lender has their risk tolerance and their "ideal clients". A triple A client can pretty much go anywhere and receive the best rate and expect little head ache (good easily provable income, down payment from own resources and easily provable, and excellent credit (above 680 credit score), with debt servicing levels less than 35/42 GDS/TDS (GDS = Gross debt servicing which is your ability to service the mortgage payment, property taxes, heating and condo fees (if a condo)/ TDS = total debt servings which is GDS plus all other debts - credit card payments, lease payments, LOC, etc).

But like I said, every bank and lender pretty much has their own policies which stem from CMHC's guidelines. The smaller banks or non-bank lenders pretty much follow CMHC's guidelines because this just makes it easier to underwrite (it is much easier to have one set of guidelines than multiple).

But even within the 5 major banks they have different guidelines. RBC as I mentioned uses a 5% repayment on all of the debt you could possibly have based on your limits on all active accounts, where Scotiabank just uses what you have outstanding and will usually also use interest only on lines of credit where you can prove you only have to make an interest payment. So its not a matter of big vs. small.

But also keep in mind that the big banks also have the locations filled with staffers either on salary or hourly wages that they must pay for along with all of the other fixed costs, where many of the non-bank lenders have just 1 or 2 underwriting offices across the country and only specialize in mortgages so their fixed costs are almost nothing in comparison.

Another little known fact is that, even though you may be getting your mortgage through Merix for example, the funds for your mortgage are coming from their investors, which tend to be the major banks (ie. RBC). So your mortgage is very secure, and should Merix (which is one of the largest non-bank companies) ever go out of business, the investor takes over the mortgage under the same terms and rate as you had with Merix. Therefore you got the best rate (usually even better than the investors floor rate) and you have the security knowing worst case scenario your mortgage is backed by large, very secure institutions.

And for those who may bring this up, I am only referring to A business (high quality, insured or insurable deals) not B deals or private deals or subprime which are now pretty much non-existent in Canada (there are a few coming up for renewal in the next 1-2 years still), which are the deals that threw the US economy into the situation they are currently in (or at least were a major contributing factor).

But long story short, the bank will always be accountable to it's shareholders, so the higher the rate they can sell, the more profitable it is for them.