Key Points
- Lenders use Gross Debt Service (GDS) and Total Debt Service (TDS) ratios
- GDS should generally be 39% or less of gross income
- TDS should generally be 44% or less of gross income
- The stress test further reduces your qualifying amount
- Improving your ratios can significantly increase your mortgage
This is one of the first questions every mortgage conversation starts with: 'What can I qualify for?' The answer depends on a few key calculations — let me walk you through them.
The Two Ratios Lenders Use
Lenders use two ratios to determine how much you can borrow:
GDS (Gross Debt Service Ratio): This measures how much of your gross monthly income goes toward housing costs — mortgage payment, property taxes, heat, and 50% of condo fees (if applicable). The maximum is typically 39%.
TDS (Total Debt Service Ratio): This adds all your other debt payments (car loans, credit cards, lines of credit, student loans) to your housing costs. The maximum is typically 44%.
Simple Example: If your gross income is $8,000/month and your maximum TDS is 44%, you can have up to $3,520/month in total debt payments (housing + all other debts). If you have a $500/month car payment, you have $3,020/month left for housing.
The Stress Test Impact
Remember: lenders qualify you at your contract rate + 2% (or 5.25%, whichever is higher). This means the mortgage amount that passes the stress test is lower than what the actual rate would suggest. Plan for this.
What You Can Do to Improve Your Qualification
Pay down other debts before applying — this frees up TDS room. Increase your down payment — less mortgage required means easier qualification. Add a co-borrower — a partner, parent, or guarantor adds their income to the equation. Improve your credit score — better credit = more lender options and potentially better rates. These aren't tricks — they're legitimate strategies that can significantly change your numbers. Book a call and I'll run your actual numbers.
Have a specific question about your situation? Every mortgage is unique. This article covers the general principles, but your circumstances might change the picture. Reach out and I'll give you a direct, honest answer.