How much you can afford, depends on a number of factors.

The most important factors are your 'gross household income', your 'down payment' and the 'mortgage interest rate'.

The CMHC, chartered banks, and most other lenders, will consider two ratios when calculating how much you can afford.

The first ratio is called the Gross Debt Service ratio (GDS).

Your monthly housing costs = mortgage payment, property taxes, heat, and one half of condo fees (if applicable) should not exceed 32% of your gross monthly income.

The second ratio is called the Total Debt Service ratio (TDS).

Your total monthly debt load, which is made up of all of the expenses used to calculate GDS, plus any other debt obligations like credit card or loan payments, cannot exceed 42% of your gross monthly income.

See the diagram below to see how these ratios are calculated; go to my mortgage calculator page and experiment with different mortgage amounts, amortizations, and interest rates to determine an apporoximate affordability amount and to get more familiar with the process.

You may also want to GO TO my Mortgage Terms Glossary to familiarize yourself with various Financing terms.




You know that the GDS=32% and that the TDS=42%, and you know what your family gross income is, so with a little algebra, you can solve for the figure that represents PIT(principal, interest, taxes) that the bank feels you can afford!

***Remember to keep all timelines the same; if you use gross monthly income, then use monthly taxes and hydro bills, and you will come up with a monthly gds or tds ratio; if annual gross income, then use annual property taxes and utility bills.

With todays low interest rates, that figure will carry a much larger mortgage than it used to...


IF YOU ARE PLANNING TO BUY A HOME IN THE NEXT FEW MONTHS...

DO NOT buy yourself a new car with a high monthy payment

DO NOT transfer large amounts of money in and out of bank accounts

DO NOT change jobs, and if you must, DO NOT change fields of work

DO NOT apply for credit or mortgage numerous times; every time there is a credit check done on you, it's a red flag.

DO pay down some credit card bills

DO make sure you are current on all debts.

DO pay your minimum payment ON TIME; it's actually better than paying your full balance a couple of days late!

This is just some advice to help make your time at the mortgage broker as successful as possible.