Debt Service Ratios Easing

Debt-Service-RatiosCertain lenders have slowly been loosening their debt service requirements.  That’s making it easier to qualify for a mortgage.

Here’s why…

Lenders have long relied on two standard measures of one’s “ability to pay”: 

Gross Debt Service (GDS): The percentage of the borrower’s income that is needed to make all payments for costs associated with housing.

Total Debt Service (TDS):  The percentage of the borrower’s income that is needed to cover housing costs (GDS) plus any other loans that an individual has, such as credit cards and car payments.

The acceptable ratios for both have generally been 32% and 40% respectively.

Now, various lenders are dropping GDS requirements altogether and bumping their acceptable TDS ratios up to 44%.  On an exception basis, clients are sometimes approved with TDS ratios of 46% or more.

If you’ve got a big enough down payment, at least one lender will even waive their GDS/TDS requirements completely.

It’s all a product of competition, and competition is getting fierce in the mortgage biz.

Sources:  Chronicle Herald, CAAMP

  1. Sure, the banks love lending more money to people because then they can suck every last drop of prosperity out of the production of the country. It looks to me like our industry is just slowly following along similar patterns of credit loosening as our cousins to the south just to get us to somewhere in a hand-basket like they are. Of course, with us it’s different and our loosening will result in the boom of the millennia and not the complete melt down of the banking system . . . we hope.

  2. I thought loose lending ADDED prosperity to the country. Or am I a crazy foo??
    What’s wrong with a little melt down anyway? A nice 30% dump in house prices might actually allow me to qualify for a 200 sq ft condo in Vancouver!

  3. Hi Traciatim,
    Now now. Isn’t that a smidgen cynical? :-)
    It’s true that lending criteria is loosening up in Canada. However, in my experience lenders are still very conservative when approving applications with increased ratios. They typically want to see something to offset the added risk, like a bigger down payment or more assets.
    Good luck with the condo purchase. Keep in mind, most lenders want to see at least 500 square feet before they’ll give you a mortgage. :)
    Have a great weekend everyone!

  4. Is the name of the game “create the worlds largest housing bubble” Whats next a 50+ year mortgage…oh wait someone is working on a 55. LOL!

  5. Canada’s mortgage industry is reacting to, and fueling, already hot demand–no doubt about it.
    Yet, while lenders are getting more liberal, we still haven’t seen irresponsible lending come to Canada. It’s very different than the climate a few years ago in the U.S.
    For example, you might find a 2.5% teaser rate in Canada but guess what, you’ll be qualified on the lender’s full three or five-year posted rate (versus the U.S. practice of using the teaser rate).
    Similarly, 40-year Am’s are probably just the beginning in Canada. Someday we might follow Britain’s lead and have a 99-year mortgage. But, if we do, borrowers approved for such loans will meet prudent qualification standards. The feds and secondary mortgage market will demand it.
    Rob, Managing Ed.

  6. Well, you could call it cynical and it probably will be if a few years go by and things just even out and normalize. If the real estate market follows the US and stalls in the next 18 months and we hear tons of people whining for handouts then I’ll just be a realist.
    A banks sole purpose is to make money of other people’s work by using inventory (money) that they don’t actually have. It’s the only industry that can do this. I don’t really agree that this should be allowed, but I suppose that’s the way the world works.
    The problem with this is that if a lot of people at once decide things are too risky and go to the bank and want their money the whole economy collapses. I surely don’t trust banks enough to trust the fate of the country on them.

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