$27,000 mortgage costs + $5,000 other housing expenses + $7,800 debt service costs = $39,800 total debt load
TDS = $39,800 total debt load / $100,000 gross income = 39.8%
Because their TDS is within the 40% guideline, their mortgage borrowing power is not affected. The most the lender will approve in mortgage carrying costs is still $27,000 annually ($2,250 a month), and the mortgage loan qualification amounts remain the same.
What if, in addition to the above debts, the couple also has a car loan with payments of $6,000 annually ($500 a month)? The TDS ratio now increases to 45.8%, which exceeds the 40% guideline:
$27,000 mortgage costs + $5,000 other housing expenses + $13,800 debt service costs = $45,800 total debt load
TDS = $45,800 total debt load / $100,000 gross income = 45.8%
In this situation, the lender will cut the allowable mortgage carrying costs by $5,800 (from $27,000 from $21,200) to keep within the 40% TDS guideline. In other words, the car loan reduces the couple’s mortgage affordability.
$21,200 mortgage costs + $5,000 other housing expenses + $13,800 debt service costs = $40,000 total debt load
TDS = $40,000 total debt load / $100,000 gross income = 40%
Based on their income, the couple’s mortgage payments cannot exceed $21,200 annually ($1,767 a month, amortized over 25 years). At five-year fixed rates of 1.75% and 3%, their maximum mortgage loan would be $430,000 and $370,000, respectively. In this case, the couple’s debt cost them more than $100,000 in mortgage borrowing power.
Buying a home when you have credit card debt
So, what’s the bottom line for you as a home buyer if you carry credit card debt?
How does the amount of credit that is available (credit limits) to you affect your application?
It helps with your credit score and utilization rate, but seems to hinder loan applications. What is the comparison to your income?
(Not the debt, the limit)