How Much Home Can I Afford ?

How much you can afford and how much a lender will lend you are two different things. You may find the amount the bank is willing to lend you is more (or less) than you are comfortable spending.  Most lenders have two basic formulas they use to decide the maximum they will lend you:

*    The basic cost of owning a home should not exceed 32% of your family's gross income. The costs they consider are your monthly mortgage, property tax, and heating payments. (If you are buying a condominium, they also add in 50% of your condo fees). This is called the gross debt-service ratio.

*    Lenders will also add in the monthly payments on all your loans and credit cards to your housing costs. This process, called the total debt-service ratio, ensures that these monthly expenses do not exceed 40% or so of your household's gross monthly income.

Example:
Using a 6% interest rate, 25 year amortization, $3600 a year in annual taxes and $75-$100 a month in heating costs, based on 32% G.D.S., just like above and considering you may have some other small monthly debt obligations already. We're assuming a good credit rating and other financial requirements are met.

Maximum Mortgage Calculator Canada