Individual Application

What's  the first step in the buying process? Finding out how much space you can afford! Contact a lender to get a pre-qualification assessment, which is usually free. During the process, a loan officer will look at a variety of factors, including your financial situation, to help you evaluate your financing options. Pre-qualification gives you an idea of how much the lender will give you before you start looking; this allows you to target your search and gives you more negotiating power when you are ready to make an offer on a specific property.

During the pre-qualification process, the loan officer will look at and compare the following:

• Gross Monthly Income: Your total monthly income before taxes. You must list the source and amount of income, and can include money earned from:
  • A job;
  • Selling artwork and performances;
  • Lecturing fees;
  • Commission work;
  • Alimony, child support and maintenance income. (Do not include information about these income sources if you do not want them to be considered as funds available to repay the loan);
  • Dividends;
  • Rental income on other properties.

• Monthly Debts: Debts you pay each month, including:
  • Bank, credit union or car loans, student loans, debt consolidation payments;
  • Credit cards: Lenders will base this amount on your minimum monthly payments per card, or 5% of the outstanding balance;
  • Co-signed debts;
  • Alimony, child support, separate maintenance payments (if applicable);
  • Mortgage payments made for other properties.

Your gross monthly income and debts will then be used to help determine the amount of the loan for which you qualify.

Other factors to be considered include:

• Property Debt Ratio: The ratio of your property costs to your income. Includes:
  • Mortgage payments;
  • Property taxes;
  • Insurance (property and mortgage); and
  • Condominium/association fees, if applicable.

In most cases, this ratio should not exceed 28% of your income for residential properties. For example, if your income is $3,500 per month, then 28% of this would equal $980 ($3,500 x 0.28). This means $980 is the total amount a lending institution will allow you to use to pay the mortgage, property taxes, insurance and condominium/association fees (if applicable). 

Because commercial mortgage loans are customized on a case-by-case basis, the requirements for property debt ratio will vary from lender to lender.

• Total Debt Ratio: The ratio of your property costs plus any other fixed monthly debt (student loan payments, credit cards, etc.) you must pay. This debt should not exceed 36% of your income for residential properties.
  
  Using our previous example, if your income is $3,500 per month, then 36% of additional debt translates into $1,260 ($3,500 x 0.36). Besides the $980 per month the lending institution will allow you to dedicate to paying your property expenses, you are allowed another $1,260 per month to allocate towards non-property related bills such as utilities, credit card payments, student loans, car payments, etc.   Again, the total debt ratio allowed will vary from lender to lender for commercial mortgage loans.

Using the above example, the total amount of funds from your income allowed per month for both your property expenses and other bills would be $2,240.

Depending on the type of loan you use, these maximum ratio guidelines may differ. When you pre-qualify for a mortgage, the loan officer will determine your loan amount by using a calculation similar to the one used in the Mortgage Calculation Worksheet.  Requirements and calculations might be different for commercial purchases.

You might want to consider getting a co-borrower, such as a family member, if you do not have enough income to qualify for a mortgage loan. However, the lender will typically want to add that person’s name to the title, which will make this individual a co-owner of the property. You should only complete the co-borrower section if another person will be jointly obligated for paying the mortgage, or if you will be relying on the income assets of another person (i.e. your spouse) for repayment of the loan.