Determine What You Can Afford
|Take your total monthly gross income (before tax)||$|
|Multiply it by the maximum GDS Ratio (30%)||$|
|This is the maximum amount available for your mortgage payment (principal and interest), property taxes and 50% of condo fees (if applicable)||$|
Example: John and Jackie have a gross family income of $66,000 per year, or $5,500 per month. No more that $1,650 ($5,500 x 30%) can be applied to housing expenses.
Your TDS takes into account monthly housing expenses plus other debts and loans you may have. To calculate your Total Debt Service Ratio (TDS):
|Take your monthly gross income (before tax)||$|
|Multiply it by the maximum TDS ratio (40%)||$|
|Subtract your regular monthly expenses (eg. credit cards, car payments, personal loans)||$|
|This is the maximum amount available for your mortgage payment, property taxes and 50% of condo fees (if applicable)||$|
Example: John and Jackie have a gross family income of $66,000 per year, or $5,500 per month. They also have 2 car payments totalling $575 per month, a student loan of $150 per month and credit card payments of $175 per month. They can apply no more than $1,300 of their monthly income to housing costs ($5,500 x 40% = $2,200 - $900 = $1,300).
Calculate the amount available to apply to your monthly mortgage payment. This figure will be used to calculate how much mortgage you are eligible for. To calculate this amount:
|Identify the lower of your GDS or TDS||$|
|Subtract an appropriate amount for property tax||$|
|This is the amount we will now use to calculate how much mortgage you are eligible for.||$|
Using the example of John and Jackie, their TDS ($1,300) is lower than their GDS ($1,650) and they estimate their property taxes will be $175 per month. They have $1,125 available to apply to their monthly mortgage payment. (i.e. $1,300 - $175 = $1,125)
This equals approximately the price of the home that you can afford. In our example John and Jackie, the amount calculated in step 3 was $1,125. They also saved a down payment of $30,000. With a monthly payment of $1,125 (refer to column A) they are eligible for an approximate mortgage of $130,000 (refer to column B). With their down payment of $30,000, they can afford to buy a home worth approximately $160,000.
*Note: The monthly payment in column A includes principle and interest payment per month based on interest rate of 6.75% and 25 year amortization.
|*Monthly Payment||Eligible Amount of Mortgage|
House Price You Can Afford