How do I figure out how much home I can afford to buy in Ontario?
Lenders use two main ratios when assessing affordability. The Gross Debt Service (GDS) ratio measures your housing costs — mortgage principal and interest, property taxes, and heat — as a percentage of your gross monthly income. The Total Debt Service (TDS) ratio adds all other monthly debt obligations (car payments, student loans, credit cards) to the housing costs. Most federally regulated lenders require GDS no higher than 39% and TDS no higher than 44%, though thresholds can vary.
Beyond what a lender will approve, you should consider what you can comfortably afford. Factor in property taxes, utilities, maintenance and repairs (a general rule of thumb is to budget 1% of the home's value annually for maintenance), condo fees if applicable, and the loss of income flexibility that comes with a large mortgage. The amount a lender approves and the amount that is comfortable for your household budget are often different numbers.
Working backward from your monthly budget to a purchase price is often more useful than starting from the maximum mortgage you can get. A mortgage broker or financial planner can help with this analysis.
Key takeaways
- Lenders use GDS and TDS ratios to assess affordability, with typical caps of 39%/44%.
- Lender approval and personal comfort affordability are often different numbers.
- Budget for property taxes, maintenance, utilities, and condo fees — not just the mortgage.
- Working backward from your monthly budget is a useful planning approach.