How much can I afford?
So how do you get from here to there? Bridging the gap between dreaming and owning can be costly.
Most lenders say that your monthly housing expenses (principal, interest and taxes) should not exceed 30% of your family income (before personal income tax). This is called your gross debt service ratio (GDS).
Lenders may also look at your total debt service ratio (TDS). Your TDS takes into account monthly housing expenses, plus other debts and loans you may have.
To calculate your TDS:
- Multiply your monthly gross (before tax) income by the maximum TDS ratio of 40%.
- Subtract your regular monthly costs (e.g. credit cards, car payments, personal loans).
The figure you are left with represents the maximum amount available for your mortgage payment, property taxes and 50% of condo fees (if applicable).
How much will I initially need to purchase my new home?
You will need enough funds to cover your down payment and closing costs, as well as the remaining balance on the cost of the home. This can be sourced through financing or other means.
A larger down payment means greater savings.
The money you pay up-front for a house is the down payment. Down payments are typically a percentage of the purchase price of the home. The source of money for your down payment is often either your savings or the net proceeds from the sale of a home you already own.
The larger your down payment, the more you save in the long run. A larger down payment:
- Reduces the amount of your monthly principal and interest payment
- Reduces the total amount of interest you pay over the life of your mortgage