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Affordability

How much can I afford to pay for a home?

To determine 'affordability' you will first need to know your personal gross annual income along with the amount of any debt outstanding and the monthly payments. Assuming it is your principal residence you are purchasing; calculate 32% of your income use toward a mortgage payment, property taxes, and heating costs. If applicable, half of the estimated monthly condominium maintenance fees will also be included in this calculation.

Second, calculate 40% of your taxable income and deduct all of your monthly debt payments, including car loans, credit cards, and lines of credit payments. The lesser of the first or second calculation will be used to help determine how much of your income may be used towards housing related payments, including your mortgage payment. These calculations are based on lenders' usual guidelines.

In addition to considering what the ratios say you can afford, make sure you calculate how much you think you can afford. If the payment amount you are comfortable with is less than 32% of your income, you may want to settle for the lower amount rather than stretch yourself financially. Make sure you don't leave yourself house poor. Structure your payments so that you can still afford simple luxuries.

How much mortgage can I afford?

The amount of a mortgage for which one can qualify is generally founded in 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 fair and feasible amount of mortgage available to the prospective borrower. This figure is calculated via their GDS and TDS ratios. Generally, lenders will have an acceptable Gross Debt Service ratio ranging from 32%. In other words, 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 lenders will have an acceptable Total Debt Service ratio of 40%. In other words, 40% of one's monthly household income can be reasonably set aside for one's total debt obligations, including their impending mortgage payment.

How does bankruptcy affect qualification for a mortgage?

Depending on the circumstances surrounding your bankruptcy, some lenders will consider providing mortgage financing after being fully discharged from bankruptcy with some re-established, unblemished credit. Any of our associates would be happy to discuss your qualifications after bankruptcy by contacting our office at your earliest opportunity.

How will child support affect mortgage qualification?

Where you pay child support and alimony to another person, generally the annual amount paid out is deducted from your total annual income before determining the size of mortgage you will qualify for.

Where you receive child support and alimony from another person, typically the amount paid may be added to your total income before determining the size of mortgage you will qualify for, provided documentation of a court order is provided and proof of regular receipt of support is available for a period determined by the lender.