It’s an exciting time … you’ve made the decision to purchase a home!

Now is the time to speak with your mortgage broker or bank and obtain written mortgage approval, in essence, your approved buying power.

Knowing your approval amount will help guide you towards homes that fit your budget. Having your financing in place will allow you to make an offer with confidence.

Having your financing in place is great, but how is your mortgage approval amount determined?

• Your lender will use Debt Service Ratio (DSR) calculations to determine whether you have the capacity to make your mortgage payments.
• In order to calculate your DSR, they will look at your monthly debt divided by your gross monthly income (before taxes).

The two calculations used to determine your DSR are: Gross Debt Servicing (GDS) and Total Debt Servicing (TDS)

    Gross Debt Servicing (GDS)

• GDS is the maximum costs you can afford each month for shelter
• GDS = (Total Shelter cost* x 100) / Gross Income
• This is used to determine if too much of your income is being spent on household expenses
• Typically, this should not exceed 30% of your income

    Total Debt Servicing (TDS)

• TDS = (Total Shelter cost* + debt payments** x 100) / Gross Income
• This is to determine if too much is spent on house expenses and debt payments
• Typically, this should not exceed 40% of your income

Your mortgage approval (buying power) is an excellent starting point for your home search. Take a few minutes to contact your bank or broker and obtain your written mortgage approval. When you find that perfect property, your written approval will make your offer stronger and some brokers will guarantee their interest rate.

Please reach out to me if you’d like names of mortgage brokers that have successfully helped my clients with their home purchase. Getting the paperwork out of the way will allow you to enjoy the process of house hunting and to be ready to act when that perfect place comes along.

  *Shelter Costs: Mortgage or Rent Payments, Property Taxes, Utilities, 50% of condo fees

**Debt Payments: Loan Payments, Credit Card payments (3% of outstanding balance), Line of credit payments (interest charges)