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If you are looking to buy a home, how much of a mortgage you qualify for will depend on a number of factors. Lenders use ratios to estimate how much of your income is going towards existing debt and how much you can afford for a home mortgage. They generally take the lower of two ratios, GDS (Gross Debt Dervice) and TDS (Total Debt Service).
Gross Debt Service Ratio (GDS)
The GDS ratio is the percentage of your gross monthly income that goes toward your monthly housing costs. To be considered for a mortgage, your GDS ratio should be 32% or less. Housing costs used in this calculation include mortgage payments (principal and interest), property taxes, heating and 50% of condo fees (where applicable).
Total Debt Service Ratio (TDS)
The TDS ratio compares your total monthly debt to your gross monthly income. To be considered for a mortgage, your TDS ratio should be 40% or less. Total monthly debt includes mortgage payments (principal and interest), property taxes, heating, 50% of condo fees (where applicable) and all other loan payments (car loans, car leases, credit cards, line of credit).
See Also: Mortgage Payment Calculator
Consider Your Current and Future Lifestyle
After learning what you can qualify for, consider what you can actually afford based on your lifestyle and future plans. For instance, you may qualify for a $1,000 per month mortgage payment based on current interest rates, however, you may not be able to afford your payment if interest rates increase.
This calculator will estimate the maximum value of a house you may qualify to buy based on your current household income and other debts.