FIRST AFFORDABILITY RULE
Your monthly housing costs should be no more than 32% of your average gross monthly income. This percentage is known as your gross debt-to-income or gross debt service (GDS) ratio.
Housing costs include:
- your monthly mortgage payment (principal and interest)
- property taxes
- heating expenses
- 50% of condo fees (if applicable)
SECOND AFFORDABILITY RULE
Your monthly debt load should be no more than 40% of your average gross monthly income. This percentage is known as your total debt-to-income or total debt service (TDS) ratio.
Your monthly debt load includes:
- housing costs (amount calculated in rule 1)
- car loans or leases
- credit card payments
- line of credit payments
- other mortgage payments
The maximum amount you can afford to spend on a home depends on these numbers and the size of your down payment.
In addition to GDS and TDS ratios, financial institutions base their lending decision on your credit history, job stability and the amount of your down payment. Interest rates also affect the amount of financing you will be able to obtain.
*Please note that many lenders are prepared to exceed these guidelines.
