How to Calculate Mortgage Affordability

1. How to Calculate Mortgage Affordability Try out mortgage affordability calculator on our website, it will show you an accurate estimate of how much you can borrow. But do you also wonder how the estimate is calculated? Keep on reading, we will break it down for you How to estimate mortgage affordability? Lenders consider two ratios when determining how much you are eligible for a mortgage: total debt service (GDS) ratio and total debt service (TDS) ratio. They take into account your income, monthly housing costs and total debt burden. The first affordability rule developed by the Canadian Mortgage and Housing Corporation (CMHC) is that your monthly home cost (including mortgage principal and interest, taxes,

2. and heating costs (PITH)) must not exceed 32% of the total monthly household income. For condos, PITH also includes half of your monthly condo management fee. These housing costs as a percentage of your total monthly income is the GDS ratio. CMHC’s second affordability rule is that your total monthly debt burden (including housing costs) should not exceed 40% of your total monthly income. In addition to housing costs, your total monthly debt includes credit card payments, car payments and other loan payments. Your total monthly debt burden as a percentage of your total household income is the TDS ratio. Please note, industry guidelines for GDS and TDS are 32% and 40% respectively, most borrowers with good credit and stable income will be allowed to exceed these limits. The maximums are 39% for GDS and 44% for TDS. The estimate for calculation is based on the max limits. Down Payment Your down payment is heavily considered to determine your maximum affordability. An easy yet efficient way to estimate max borrow amount is that: if your down payment is $ 25,000 or less, you can find the highest purchase price using this formula: Down payment / 5% = Maximum affordability. if your down payment is more than $25K, you can find the highest purchase price by: Down payment-$ 25,000 / 10% + $ 500,000. For example, if you have $40,000 for down payment, the max price you can afford will be $ 40,000-$ 25,000 = $ 15,000 / 10% = $ 150,000 + $ 500,000 = $ 650,000. Mortgages with a down payment of less than 20% is referred to as high ratio mortgages and you will have to purchase CMHC insurance, a mortgage default insurance. Try our CMHC insurance calculator on our website, so you can estimate how much the insurance will cost you.

3. Put Cash aside There will be a 1.5% – 4% of the sale price of the property as closing fee (legal fee, Land Transfer Tax, title insurance and etc) which are payable on the closing day. Be aware of these costs. Other Factors On top of the debt service ratios, down payment and cash closing fees, lenders will also consider your credit score and income. All of these factors are of equal importance. For example, even if you have good credit, a sizable down payment, and no debt, but your income is low, that will make it difficult to get mortgage approved. The affordability calculator gives you a good estimate, but speak with our professional mortgage brokers to get a more accurate estimate ??Kai Lu ?Mob: 647-869-1058 ? info@mortgagemojo.ca ?https://www.mortgagemojo.ca/