What Is a High Debt Ratio Loan?
The high debt ratio loans have become popular in the mortgage business. It is especially good for people who have a steady income and available cash but do not have enough money for a large down payment, or for those who can afford the down payment but choose to spend less and keep more cash on hand. Conventional mortgages require a 20–25% down payment, as lenders traditionally will not loan more than 75%, but it is still possible to obtain high debt ratio loans if you don’t have enough to meet that requirement. Loans for high debt to income ratio allow people to buy a home with as little as a 5% down payment, but it comes with higher interest rates. In a conventional mortgage, a home costing $250,000 would require a down payment of $65,500 (or 25%). With a high debt to income ratio mortgage loan, the down payment can be as little as $12,500 (or 5%). High ratio mortgages can be used for purposes other than a home mortgage, such as buying a car or consolidating debt.
The mortgage crisis of 2008 brought loans for high debt to income ratio into question, and it is now a requirement of most lenders for the borrower to purchase mortgage insurance. The insurance protects the lender from default. Mortgage insurance can be purchased through the Canada Mortgage and Housing Corporation (CMHC). Originally created for first-time homeowners, CMHC insurance is now available to all qualifying buyers. A mortgage that is insured by the CMHC is guaranteed by the federal government. Genworth, also known as GE Capital Mortgage Insurance, is a privately owned company that also sells mortgage insurance. After questioning this practice when housing prices dropped and unemployment increased, making it difficult for people to pay their mortgages, Genworth recently decided to continue insuring mortgages.
The insurance companies can set maximum home purchase prices that may vary by province, and the loans come with certain qualifications. These include the following stipulations: the home you purchase must be your principal residence, you must have a minimum down payment of 5%, and you need proof that you can afford closing costs—which can run about 1.5% of purchase price. The insurance premiums depend on the purchase price and value of the home and can range from 0.6% to 2.75%. Insurance companies will have the property appraised and use the value to help determine the loan amount qualification. If the home you are looking to buy comes in at a low appraisal value, you may be disqualified for a large enough loan to meet your needs. Appraisal criteria include condition of the foundation and the surrounding neighborhoods.
While you will probably pay more interest on high debt ratio loans, it is a good option if you want to retain more of your cash. You can have the dream of owning your own home by making a smaller than traditional down payment and still have some disposable income. Knowing how much you can afford to pay monthly for a high debt to income ratio mortgage loan is important and figuring out your debt-to-income ratio will help.
What is the GLM Mortgage Group?
GLM Mortgage Group, powered by Dominion Lending Centres, is your Vancouver and Lower Mainland Mortgage Brokerage service. We are always ready to move forward with you to obtain the mortgage you need with the sharpest mortgage rate available. Whether it’s a fixed rate or variable rate mortgage you are after, we are dedicated to finding the best mortgage rates in Vancouver, including Home Loans, Consolidation Loans, Lines of Credit and more. No matter what you need, our team of Mortgage Specialists will follow through to find the best mortgage product that fits your individual circumstances. Our free online mortgage calculator keeps you informed on how much your mortgage payment will be as well as show how different mortgage rates will affect the mortgage you require.As your Vancouver mortgage broker, GLM Mortgage is committed to clear communication with our clients. We make sure you are informed on all the mortgage options available to you. We call you back within 90 minutes to make sure that you have the fastest service available. We are not only available in Vancouver and the Lower Mainland, we are also available across Canada.GLM Mortgage Group is your Vancouver mortgage specialist. With over 22 years of experience in the investment industry we know how to wade through the challenging process of getting a mortgage. We provide smarter options to putting your mortgage in place. We know how important it is to have an experienced professional Mortgage Specialist available to walk through your mortgage experience and stay with you through to the very end.We get you a fast “YES” at the sharpest rate… guaranteed! Call us now so that you can get that mortgage you’ve been waiting for. We already have been working for you, making sure that you will have every option of a mortgage available to you. GLM Mortgage Group is on call for you!