Answer:
Lending institutions such as banks and trust companies use two simple rules to determine how much you can afford in monthly expenses for housing including your mortgage payment.
- the first rule is that your monthly expenses for housing can not be more than 32% of your gross monthly income. Your monthly expenses include Principal mortgage payment, Interest on the mortgage, Taxes - property and Heating; PITH for short. This total amount is your Gross Debt Service (GDS)
- The second rule is that your monthly debt load should not be more than 40% of your gross monthly heating. PITH is included with other debts such as car loans, leases, credit card payments - You have 8% of your gross income for these other debts. This total amount is your Total Debt Service (GDS)
Keep in mind that most homebuyers or people refinancing keep their debt ratio comfortably below the maximums. The lower your debt load the more affordable your home and lifestyle.
Whether applying for a credit card, personal loan, or a mortgage, all creditors will want to review your credit history. The best thing you can do is avoid consumer debt as much as possible, always pay your bills on time, and the less you inquire for credit, the better.
Talk to an Accredited Mortgage Professional (AMP) about calculating your GDS and TDS before you start looking for your home.
Send your questions to Lisette at lharris@tmacc.com or call today, (905) 529-1199.
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