If you’re self-employed, don’t claim much income, are in a unique financial situation or just can’t qualify with the bank for whatever reason, it’s imperative you learn about extended ratio mortgage lending programs.
It’s no secret major banks have stricter lending guidelines and also have to adhere to Government-mandated policies such as conservative GDS and TDS thresholds.
What are GDS and TDS?
GDS stands for Gross Debt Servicing. GDS is the percentage of your income that is required to pay all your monthly expenses, including mortgage principal and interest payments, property taxes and heat.
Banks usually allow a GDS of 35-39% depending on your credit score. If your score is over 680, then GDS can go up to 39% whereas if it’s lower, the maximum GDS is 35%. Your credit score must not be lower than 620 in most cases.
TDS stands for Total Debt Servicing. TDS is the percentage of your income that covers all of your debts. So besides the liabilities that make up GDS we are also including all other loans and their monthly payments such as credit cards, car payments, and personal loans. Banks allow a TDS of between 42-44% depending on your credit score.
What are extended ratios programs?
Extended Ratio programs allow for a higher percentage of GDS and TDS. For example, an extended ratio program may consider 50% GDS and 55% TDS, which means you can qualify for significantly more mortgage.
Are interest rates higher?
With more risk usually comes higher interest rates, however, extended ratio programs offer extremely competitive interest rates, which make them a great option for those borrowers that don’t fit into the big bank’s criteria.
Here’s an example of a client I recently got approved who was declined by four major banks.
Mortgage amount $750,000
Discharged from Bankruptcy for 1 year only.
Credit Score 604
Interest Rate: 3% for a 3-year fixed term.
Do you have questions or do you need advice about financing? Please call or write.
Sarah A. Colucci
Mortgage Agent Lic. M14000929
Mortgage Edge, Broker 10680
Direct: (647) 773-4849
By: Sarah Colucci