How Much Can You Afford?

When you start thinking about buying your first home, one question that comes to mind is “how much can I afford?”  The following calculations will help you determine this amount. Of course, this is just an example and you should always get a mortgage pre-approval from a qualified lender. 

Gross Debt Service (GDS) Ratio – Your total monthly housing costs, including Principal, Interest, property Taxes, Heating (P.I.T.H.), and 50% of applicable condominium fees, shouldn’t represent more than 32% of your gross household income.

Total Debt Service (TDS) Ratio – The total debt load shouldn’t be more than 40% of your gross household income. The TDS is your P.I.T.H. + 50% of condominium fees (if applicable) + payments on all other debt (including but not limited to car loans, credit cards, lines of credit, student loans) / gross annual household income.

Let’s say that you have a household income of $60,000 a year, and you are looking to buy a condo.  We’ll assume that you are a first time home buyer and have the minimum 5% down, condo fees are $200/month, heating will cost you roughly $100/month with equal billing (your heating bill spread out equally over the entire year), your monthly tax bill will be $258 (based on the Ottawa Tax Estimator) and you have a 5 year variable mortgage at a rate of 3% (most banks are offering a rate of 2.85%).  Let’s find out how much you can you afford.

Step 1 – Calculating GDS

We must first find out our maximum monthly payment.

i)Monthly Income

$60,000 (annual gross income) / 12 = $5000.00

ii) Monthly GDS

$5000.00 x 0.32 = $1600

Therefore, the maximum we can contribute monthly to the mortgage principal and interest, property tax and heat is $1600.00.

Step 2 – Find Maximum Monthly Mortgage Payment

i) $1600 (GDS) – $100 (50% of condo fee) – $100 (heat) – $258 (tax) = $1142.00

Step 3 – What Will $1142.00 Get You?

This calculation is tricky so I will just tell you.  The cost of carrying a $237,500 mortgage at 3% is $1124, $18.00 under our calculated GDS.  However, we also have the additional 5% down payment required.

$250,000 (Purchase Price) x 0.05 = $12,500 (Down Payment)

Therefore, under the circumstances in this example the buyer’s maximum budget would be $250,000.  This budget would increase if he or she purchases a home with out condo fees.

$237,500 (Mortgage Amount) + $12,500 (Down Payment) = $250,000

When it comes to calculating the TDS, no two situations are exactly the same.  Use the equation above to find out if you also satisfy the criteria for the TDS Ratio.  For a list of preferred lenders drop me a line at or feel to give me a call.

About tylerlaird
Having been born and raised in Ottawa, this city is more than my home, it is a part of who I am and the basis from which all other cities must be compared. I have watched it grow and progress in its size and over time I found myself naturally drawn to the different neighbourhoods, with their varying characters, layouts and styles. After earning a BA in Law from Carleton University, Tyler discovered a new passion, real estate. In 2010, he began to use his passion for Ottawa’s various housing styles and diverse neighbourhoods, to help many people find that place that they can call home.

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