How much of a mortgage can I afford?

Affordability is probably the single biggest concern of first-time homebuyers. Given the media coverage devoted to the issue, it's not surprising that many young families wonder how long it will take them to afford their first home.

The size of mortgage for which one can qualify is based on what are known as qualification ratios: Gross Debt Service ratio and Total Debt Service ratio, or "GDS" and "TDS". Lenders evaluate one's monthly income, as well as their monthly debt obligations, to determine a feasible amount of mortgage available to a prospective borrower. This figure is calculated applying GDS and TDS guidelines. Generally, borrowers will have an acceptable Gross Debt Service ratio ranging from 28-32%. In other words, 28-32% of one's monthly household income can be reasonably set aside for one's mortgage payment, in the eyes of the lender. Furthermore, most borrowers will have an acceptable Total Debt Service ratio of 36-40%. In other words, 36-40% of one's monthly household income can be reasonably set aside for one's total debt obligations, including their impending mortgage payment.

Shop around before committing to any lending institution. Speak to mortgage brokers, banks or lenders to find the mortgage option you’re most comfortable with. There are many financing options available today, and some include low down payments. Your lender will help find an option that fits your budget, and you may be surprised at just how much home you can afford.