Most new home purchasers in Alberta do not have sufficient funds available for financing real estate (purchase their home outright), so a method of financing the difference between the down payment and the purchase price is required. The banks and finance companies have a number of rules and procedures they use to determine what properties they will finance.
Currently in Alberta it is possible to purchase to purchase a primary residence with no Money for a down payment. Typicaly in the past 5% was required for a down payment. In both cases the purchaser must apply and be approved for a mortgage loan. If the down payment is less than 25% this is referred to a High Ratio Mortgage, and mortgage insurance fees apply. Typically this insurance is provide by CMHC (Canada Mortgage and Housing) or GE
Two important calculations used by finance companies are called GDS and TDS. (Gross debt Service Ratio and Total Debt Service Ratios.
Gross Debt Service Ratio is a calculation that verifies that your loan payments Principal, Interest & Taxes can not be more than 30% of your total Income.
Total Debt Service Ratio is a calculation that verifies that your loan payments Principal, Interest, Taxes & all other debt Payments can not be more than 40% of your total Income.
Using these calculations it is possible to calculate the maximum monthly payments that the financing company will approve you for.
Of course the other factors that must be taken into account are the Interest Rate, the Mortgage Term and Amortization period of the new Mortgage.
AMORTIZATION – The number of years it takes to repay the entire amount of a mortgage. (typically 25 years)
MORTGAGE TERM – The length of time a lender will loan mortgage funds to a borrower. Most mortgage terms run from six months to five years, after which the borrower can either repay the balance (remaining principal) of the mortgage, or renegotiate the mortgage for another term.
INTEREST RATE – The return the lender receives for advancing the mortgage funds required by the borrower to purchase a property.
It is important that we calculate this data in advance, so that we can protect your financial interests. We also recommend that you discuss your financial situation with a mortgage broker or your bank before we start the home search process. This way you will understand the financial process, and you will not be disappointed after we find you a great home and the bank will not provide financing on it.
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