Debt vs Income - What's more important when appyling for a mortgage?

http://LeahCoss.ca
Hi everyone. How are you? It's Leah Coss with The Mortgage Center. I wanted to talk about debt because for many of you, you come to me going, "Well, OK we have a combined income of a $100,000 but you're telling me I can only afford a $200,000 home?" How does this work? The main thing standing in most of your guy's way is simply your debts, your monthly mandatory payments on debts. That's just killing your debt servicing ratio. So just because you make a certain amount of money, if your debts outweigh what you're allocated by the banks to spend every month, the amount that you can get for a mortgage becomes really quite minimal, really, really quickly.
So if you're curious of how the debt servicing ratio, like what the actual equation is, I've got that right on my blog. So take a look through there and that'll definitely lay it out for you.
But I want to talk about debt specifically so that when you're looking at your debts, you can evaluate properly which debts you should be paying off first. So, I was sitting down with a nice couple the other day and we were looking at their debts. They said, "Well what should we pay off first?" And a $15,000 car payment that they had for actually a motorcycle and that was $290 a month payment. They also had different credit cards and lines of credit. Also equaling, well there's one that was $8,000 a month and it was a $250 payment.
So we've got $15, 000 owed for $290 a month compared to $8,000, only $8,000, for $250 payment a month. Those payments are very close. When it comes to debt servicing, the banks aren't really looking at how much you owe. So the $15,000 compared to the $8, 000. A lot of people look at this situation and say, "Wow we got to pay down that $15,000 cause that's killing us but let's leave the $8,000 alone."
What is actually killing them is the monthly payments. So if they only have a certain amount of money to work with to pay things down, they should actually pay down the $8,000 and leave the $15,000 alone. Because both are costing them about $250, $290 a month. They're very close monthly payments.
Seeing as you can get rid of a $250 payment with just $8,000, that's a lot easier to stomach then paying down $15,000 to get rid of a $290 payment.
So do you see how that works? It's not about how much you owe; it's about how much you're actually having to output on a monthly basis.
Banks look at cash flow. They really don't care how much you owe. I mean if it's excessive, that'll matter I guess, but really it comes down to can you afford to live on a month to month basis.
When you're looking at your debts, if you're not sure of what debts you should pay off first compared to others, give me a call.
Another thing that I'll tell you is, if there is something that you're outputting, like maybe you've got a long period of time that you're giving yourself to pay things off. The first things you should be paying off is whatever has the highest interest rate. Obviously that's costing you more money on a month to month basis than your other debts. So, just another quick tip for you.
If you have questions about TDS or debt servicing or the actual bank calculation that they use, looking at your income compared to your debts, look at my other videos. As well, if you want to know about your specific situation to get you best prepared for buying a home and you want me to analyze your debts and income situation, give me a call.
It actually doesn't take that long to just go over your numbers on the phone, or we can meet in person if you're local. We can go from there and hopefully get you into the home that you want.
Leah Cross for The Mortgage Center. That's all for today, I guess.
http://LeahCoss.ca

Category:

Education

Tags:

• income
• debt
• debt load
• buying a home
• qualifying for a mortgage
• getting a morgage
• leah coss
• mortgage broker
• canadian
• bc
• young mortgage broker
• how to buy a bigger home
• reducing debt
• help with debt
• lowering debt payments
• what to pay off first
• helping buying a home
• understanding a mortgage
• tips to reducing debt
• paying off credit cards
• tips for getting a mortgage
• lowering debt first

[supremo502]

i want to have sex with u