How much you can afford depends on a number of factors. The most important of these are your gross household income, your down payment, and the mortgage interest rate.
Lenders will consider two ratios when calculating how much you can afford. The first is called the Gross Debt Service ratio (GDS). Your monthly housing costs – that is, your mortgage payment, property taxes, heat, and one half of condo fees (if applicable) – should not exceed 32% of your gross monthly income.
The second is called the Total Debt Service ratio (TDS). Your total monthly debt load, which is made up of all of the expenses used to calculate GDS plus any other debt obligations, such as credit card payments or loan payments, cannot exceed 42% of your gross monthly income.
Once you have determined the maximum monthly payment you can afford, you can use our mortgage calculator to experiment with some numbers and see what your purchase price range will be.
As you shop for a mortgage, keep in mind that you will save money over the long term by paying off the mortgage as quickly as possible. For example, by choosing bi-weekly accelerated payments instead of monthly payments, you can reduce your amortization from 35 years to under 28 years, saving thousands of dollars in interest.
I offer my clients guidance on mortgage financing and all other aspect of their real estate transaction. Contact me to learn more.