You may be wondering what on earth is a TDSR ratio. It is an abbreviation for total debt service ratio. This could very well affect your mortgage application, and in some cases, bring up a negative conclusion. The TDSR is a ratio that is calculated of income and debt in a given month. For many loan lenders out there, the maximum ratio is around the 40% ball park. This means that the lenders don’t want you to spend more than 40% on debt payments including your mortgage. To be able to calculate your TDSR, you must first calculate your GDSR (gross debt service ratio). This is a ratio of the gross annual income that is spent on debt payments. This ratio should not go over 32%.

GDSR = (monthly mortgage payment + monthly taxes + heating + fees)/(monthly income)(100)

TDSR = (monthly housing payments (calculated from GDSR) + monthly debt payments)/(monthly income)(100)

FIGURE IT OUT FOR YOUR SITUATION

If you know your monthly gross income, multiply this value by 0.40. This new value is what most lenders will assume you will be able to pay towards the loan, mortgage or all your debts. From this value take away your other debts (IE: credit cards, friends loan, car loan etc..). You now have a new value, this is the amount of money you will be able to pay each month for the mortgage you will be applying for. If the mortgage loan lender feels you do not have sufficient income to pay off the mortgage, you will not be granted the mortgage.

The only way have access to various investment options is to have a good credit rating. This is one of most important factors when applying for a mortgage or loan. Your credit rating is based on a score, which can topple down to a very low value, and give you no opportunity to get a loan. Before contacting your local financial advisor or lender, you should get a copy of your credit report. Your credit score will be calculated using a method called Beacon and Emperica, where there are five categories on which your credit score is based on. Each category has different weight, so they all have a different level of importance. Look at them, and try to improve on them if u can.

1. Past Payment History (35%): If you have late payments, judgements, liens or collections against you, that is not a good sign. More weight is put on recent payment history as to payment history from 3 years ago.
2. Amount of Credit (30%): Its best to have a low credit on your credit cards, meaning don’t use up 90% of the limit and start paying the minimum due.
3. Credit History (15%): Let’s say you have a credit card for 10 years, with no infractions at all. It will be much better than a 1 year credit card with no infractions. Basic point: The longer the account is active and in good status = the better.
4. Type of Credit You Use (10%): The types of credits you use will affect your credit score. If you have many ‘buy now, pay later’ credits; this imposes a potential risk for the lender to lend you money.
5. Inquiries (10%): Administrative and promotion inquires will be shown on your record. So, shopping around quite often for a loan will impose a slight chance of risk. This won’t affect your score, but it will show on your record.

So, What Can You Do To Be #1?

HIDE NOTHING

Don’t hide anything, things can happen. Just be ready to explain any problem to your lenders. if there is a record on your credit history which you can explain with some information, go ahead and do that. It will be better because it places a higher chance of getting the loan.

KEEP CREDIT BALANCES LOW

It is always best to keep your credit below or at 30% of the available credit. If you have more than 75%, your credit rating will get affected in a negative direction.

SHOPPING FOR CREDIT, ITS NOT FASHION!

Don’t go bank to bank asking for a credit, because they will pull your credit report every time, and your credit lowers. (See #5 Inquiries above). Let a broker handle it for you. What they do is, pull your credit just once, and use it for all the financial lending institutions.

USE CREDIT WISELY

As you read before, applying for too many credit cards or loans will affect your credit score. So, its best to have one credit card with a high limit, than have many credit cards. Keep your credit low, as this will bring a good impression when you go for a mortgage loan or any type of loan.

FREQUENTLY CHECK CREDIT HISTORY

Its very important to check your credit history every six months. Once in the beginning of the year, and once near the end. This is useful because, sometimes you may find errors in your report, which you can fix immediately, before it is too late.

Check Your OWN Credit History Now! Its The Beginning of 2009!