Definition of a Liability
A liability refers to any money that is owed to another party.
For mortgage qualification purposes liability generally refers to the regular payment towards that debt. Liabilities include loans (think automobile or payday loans),outstanding bills, mortgages, deferred taxes (income and property taxes); essentially any monies owed to other parties.
Liabilities can include:
- credit cards
- lines of credit (both secured and unsecured)
- wages that are being garnished
- student loans
- child or spousal support payments
- leases (property or automobile)
- property taxes on properties owned clear title
Liability as part of Mortgage Qualification
Basically to figure out how much you can qualify for on a mortgage, you take the total expense of owning a home [PITHC] and add your liabilities (all of the monthly payment amounts) and divide by your annual income. As the maximum TDS ratio is 42% if you have a GDS Ratio of 32%, that leaves 10% of your income to service the debt of your liabilities.
If you are in the market to purchase a new property, it is probably best to wait before you go and buy a new vehicle on credit, those payments could keep you from qualifying for a mortgage.
If you find yourself burdened with a debt to a number of parties and you have a considerable amount of equity in your property, you should consider debt consolidation as a way to lower your monthly payments.
If you would like to know more about how to figure out how many liabilities you have, please contact us anytime, we would love to work with you!