How Much Can I Afford to Borrow for a Home in Toronto?

One of the most common questions we receive as a mortgage agent is, “How much can I afford to borrow?” The answer depends on various factors that lenders consider when assessing your borrowing capacity. Let’s walk through these essential factors to help you understand your financial limits and make informed decisions.

1. Income

Income is a crucial factor in determining how much you can borrow. Lenders look at your gross annual income before taxes and deductions, which includes salaries, wages, rental income, and other consistent sources of income. They assess your ability to manage both housing costs and debts using two key ratios: Gross Debt Service (GDS) and Total Debt Service (TDS).

2. GDS and TDS Ratios

– Gross Debt Service (GDS) Ratio: This ratio measures the percentage of your gross income that will go toward housing costs, including mortgage payments, property taxes, heating costs, and 50% of condominium fees (if applicable).

– Total Debt Service (TDS) Ratio: TDS accounts for all housing costs plus other monthly debt obligations, such as car loans, credit card payments, and personal loans.

These ratios give lenders a clear view of your ability to manage monthly payments without being overextended. Maintaining these ratios within acceptable limits improves your chances of securing a mortgage and ensures that your monthly mortgage payments remain manageable.

3. Credit Score

Your credit score is a reflection of your financial history and reliability. Lenders use your score to assess both your borrowing power and the interest rates you’ll qualify for. Generally, a higher score not only increases your chances of approval but can also result in more favorable terms, potentially lowering your total loan cost.

4. Down Payment

Your down payment directly affects the size of your mortgage. In Canada, the minimum down payment requirements vary based on the home’s purchase price, with higher down payments required for properties over certain amounts. A larger down payment reduces the amount you need to borrow, and it can sometimes give you access to better interest rates or terms.

5. Interest Rates

Interest rates significantly impact your affordability. Even a small change in rates can increase or decrease your monthly payments, affecting the total mortgage amount you qualify for. Fixed-rate mortgages provide consistent payments, while variable-rate mortgages can fluctuate. I can help you weigh these options based on your budget and risk tolerance.

Next Steps

At Dominion Lending Centres Expert Financial, we’re here to help you determine your borrowing capacity with precision. By exploring each of these factors, we can find a mortgage solution that best fits your unique financial situation. Reach out to learn more about how we can guide you toward the home of your dreams with the clarity and confidence you deserve.