When buying a home, it is helpful to determine the type of home you'll like and how much you can afford before beginning your search. Most lenders allocate approximately 30% of your GROSS MONTHLY INCOME to housing expense. This is called the GDS (Gross Debt Servicing) ratio. Housing expense includes principal, interest, taxes and heat. To get an idea of how much you can afford to pay each month for a home, multiply your gross monthly income by 32%. This is the annual amount you can afford.
When coupled with current outstanding loan/ credit card payments, the total for all your debt service should not exceed 40% of your gross monthly income. This is called your TDS(Total Debt Servicing) ratio. Some lenders may have slightly more liberal requirements or mortgage interest rates which may increase your purchasing power.
