How Much Can I Afford?

How much you can afford and how much a lender will lend you are two different things. You may find the amount the bank is willing to lend you is more than you are comfortable budgeting. We will work with you to find the right comfort level. Most lenders have two basic formulas they use to decide the maximum they will lend you:

1. For starters, they do not want the basic costs of owning a home to eat up any more than 32% of your family's gross income. The costs they consider are your monthly mortgage, property tax, and heating payments. (If you are buying a condominium, they also add in 50% of your condo fees). How these costs compare to your monthly income is called the gross debt-service ratio.

2. The second test lenders use is to add in the monthly payments on all your loans and credit cards to your housing costs. Under this test, called the total debt-service ratio, lenders do not want these monthly expenses to eat up any more than 40% or so of your household's gross monthly income.

Here are some examples:
Using a 6% interest rate, 25 year amortization, $3600 a year in annual taxes and $75-$100 a month in heating costs, based on 32% G.D.S., just like above and considering you may have some other small monthly debt obligations already. We're assuming a good credit rating and other financial requirements are met.

Quick number cruncher
There is another, quicker way to crunch the numbers to see if you will qualify for a specific mortgage. Add your projected monthly mortgage, heating and tax payments, and multiply the total by 40. This will tell you how much annual income you will need to carry the loan. For example, say your mortgage payments, heating, and taxes will total $1,000 a month. Multiply that by 40 and you get 40,000 - the annual income required to qualify for that mortgage.

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Mortgage for Less
[Verico Mortgage For Less Corp. ]
120 Eglinton Avenue East, Suite 500
Toronto, ON M4P 1E2
CANADA
Phone: (416) 699-1010 Fax:(416) 699-8308
Toll Free: 1-888-448-2222
E-mail: info@mortgageforless.com

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