How Large Of A Mortgage Can You Afford?
Understanding Your Debt Ratios
When determining the mortgage amount you qualify for, lenders look at two ratios that reflect how much you can afford. These ratios are known as Gross Debt Service (GDS) ratio and Total Debt Service (TDS) ratio. These ratios take into consideration your capability of being able to repay the mortgage by comparing your housing debts (e.g. property taxes, condo fees, heating costs, down payment, employment income, etc.) with other debts like credit cards, student loans, vehicle loans, and so on.
Based on these specific numbers, you will need to stay under a set ratio percentage. When you are within the ratio’s range, you will be given a purchase price based on the criteria you have provided. This is usually the number the lender will use to lend you a mortgage loan. If one of your answers exceeds the industry guidelines, you should save move for a down payment and pay off some outstanding debt before making the purchase. In some cases, borrowers who have good credit and a stable income may exceed the guidelines.
If you would like to learn more about the understanding of debt ratios, please give us a call to speak with one of our mortgage agents today at (416)621-7501!