How Much Can I Afford?

Mortgage Affordability

How much you can afford and how much a lender will lend you are two different things. You may even find the amount the bank is willing to lend you is more than you are comfortable budgeting. Our brokers will provide you with all the home buying information you need and work with you to find the perfect amount for your mortgage.

Most mortgage lenders use two basic criteria to determine your mortgage affordability and decide how much to lend you:
  • The first criteria used to determine your mortgage qualification is the gross debt-service ratio (GDS). To find this number, lenders consider your monthly mortgage, property tax, and heating payments. (If you are buying a condominium, they also add in 50% of your condo fees). These should not exceed 32% of your monthly income.
  • The second test lenders use is called the total debt-service ratio. To find this number, mortgage lenders add the monthly payments on all your loans and credit cards to your housing costs. These monthly expenses should not eat up any more than 40% of your household's gross monthly income.
Here are some examples:

Taking the gross debt-service ratio and the total debt-service ratio into account, the chart below gives you an idea of the mortgage loan you would qualify based on gross family income. The chart assumes:

  • 6% interest rate
  • 25 year amortization period
  • $3600 a year in annual taxes
  • $75-$100 a month in heating costs
  • 32% GDS
  • Some other small, pre-existing monthly debt obligations.
We also assume that your credit rating is good and that other financial requirements are met.

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