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  • The first affordability rule is that your monthly housing costs shouldn’t be more than 32% of your gross monthly income.
    • Housing costs include monthly mortgage principal and interest
    • Taxes and heating expenses
    • If applicable, this sum also includes condominium fees
      Lenders add up these housing costs to determine what percentage they are of your gross monthly income. This figure is your Gross Debt Service (GDS) ratio.

 
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  • The second affordability rule is that your entire monthly debt load shouldn’t be more than 40% of your gross monthly income.
    • This includes housing costs and other debts such as car loans and credit card payments
    • Lenders add up these debts to determine what percentage they are of your gross monthly income. This figure is your Total Debt Service (TDS) ratio.
      Based on these ratios, lenders will advise you of the maximum home price they think you can afford.
      maximum you can afford to pay in monthly housing costs. Keep in mind that most homebuyers today keep their debt ratios comfortably below the maximums prescribed above. The lower your debt load, the more affordable your home and lifestyle will be.