Qualification Ratios
August 5, 2009 1:20 pm Employed Persons, First Time Home Buyer, Interest Rates, Pre Approval, Proving incomeA question I often get asked is, “How much will the lender allow me to borrow?”. For many this is the most basic and important question. While the answer is simple to figure out it is impossible to determine with any accuracy without taking a full application.
Lenders look at two key ratios to determine what you may borrow – Gross Debt Servicing Ratio (GDSR) and Total Debt Servicing Ratio (TDSR).
Each of these ratios look at key costs that all Canadian home owners carry and relate that to your income. Thereby letting us know what is the greatest mortgage payment that you can afford. From there we work the mortgage payment back to determine what the total loan amount will be.
Gross Debt Servicing Ratio (GDSR) takes into account the cost for just owning the property:
- Principle and Interest (PI) – this is your mortgage payment
- Taxes (T) – city taxes
- Heat (H) – we do live in Canada 
- Condo Fees (CF) – We use 1/2 of the condo fees and only if applicable to your situation
(PI + T + H + 1/2 CF)/Income=GDSR
Total Debt Servicing Ratio (TDSR) looks at the same things as Gross Debt Servicing Ratio but add a component for your monthly Consumer Debt Obligations (CD).
(PI + T + H + 1/2 CF + CD)/Income=TDSR
The upper limits of these ratios vary from lender to lender depending on their internal policies and from borrower to borrower depending on other factors in the application.
I would be glad to run these numbers specifically for you to help you in your real estate purchase or refinance.
