Before you embark on your housing search you need to know
how much house you can afford to buy. Knowing your affordable price range will bring your house
hunting into focus. The amount you can afford depends on a number of factors.
Most importantly, consider your gross household income, your down payment amount, and
the mortgage interest rate.
It is a good idea to get a pre-approved
mortgage, especially if you're a first time buyer. A pre-approved mortgage lets you know how
much money you qualify for, so you can shop in comfort.
Lenders determine affordability by looking at your Gross Debt Service ratio (GDS) and your
Total Debt Service ratio (TDS).
The GDS ratio is based on what you can afford to pay each month;
it includes mortgage payments, taxes and heating. Maximum GDS ratio is 32%.
The TDS ratio includes everything covered under GDS plus all your other financing obligations.
Maximum TDS ratio is 37% (40% if it's CMHC).