So you want to buy a house… How much can you afford to spend?

Lending institutions determine your ability to pay a mortgage based on your income, regardless of the size of down payment. How affordability is calculated differs slightly from one institution to the next; however, four-times your gross annual salary is a good estimate in most cases.

There are several factors that will affect the exact amount financial institutions are willing to write into a mortgage. These include:

  • your gross annual income
  • your down payment
  • the mortgage interest rate
  • your assets
  • your liabilities

Your maximum mortgage calculation is based on two simple concepts:

  1. General Debt Servicing (GDS) Costs – Your monthly housing costs should not exceed 32% of your gross income. Housing costs include mortgage payments, property taxes, heating, and condo fees where applicable.*
  2. Total Debt Servicing (TDS) Costs – Your entire monthly debt load should not exceed 42% of your gross monthly income. This includes housing costs, and other debts such as car payments, personal loans, credit card payments etc.*

*it should be noted these ratios are based on a credit score of 680 or more; a lower credit score will result in lower levels of debt allowed for qualification.

When making the decision to purchase a home, it is important to consider your own lifestyle and your debt comfort zone. To learn more about the monthly costs associated with a mortgage see our mortgage calculator.


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