Start with gross household income
Mortgage affordability calculations normally begin with gross income before income tax. For a two-income application, combine the income that a lender is prepared to verify. A quick estimate cannot decide whether commissions, bonuses, overtime, rental income or self-employment income will be accepted.
- Use annual gross income—not take-home pay.
- Keep irregular income separate until a lender confirms its treatment.
- Do not treat an online estimate as a pre-approval.
Housing costs are more than the mortgage
A useful estimate includes the mortgage payment, property taxes, heating and, for a condominium, a portion of condo fees. These costs influence the gross debt service ratio even though they are not all paid to the mortgage lender.
- Mortgage principal and interest
- Property taxes and heating
- Usually 50% of condominium fees in the ratio
Example: identify the limiting factor
Suppose a household earns $120,000, pays $500 a month toward other debts and has $60,000 available for a down payment. The calculator first estimates the mortgage supported by the GDS/TDS limits, then checks whether the down payment supports that purchase price. The lower result becomes the planning estimate.
Keep closing costs outside the down payment. Government of Canada guidance suggests buyers prepare separately for upfront costs such as legal fees, inspection, title insurance and property-tax adjustments.
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