How much house can I afford? It’s a question we’ve all wondered.

There’s a simple formula to help you understand how much debt you can take on when hunting for a home.

Meet my friend: total debt service (TDS).

Read below for how to calculate it for yourself!

This calculation is part of my 90 Days to Homeowner Challenge. If you’re thinking about homeownership, grab my free guide which covers TDS and everything else you need to know about purchasing a home!

To determine how much home you can afford, it’s great to assess your current financial standing.

Specifically, your total debt service (TDS) ratio.  Calculating your TDS ratio is a straightforward process that helps you assess your financial health and your ability to manage new debts, like a mortgage.  

First, let’s add up all your monthly expenses and debts:

Your debts include things like student loans, car payments, credit card bills, lines of credit, child or spousal support and any other debts.  Tally those expenses up and hold onto that number.

Now, divide your total debts by your gross monthly income.

Your gross income is what you earn before taxes, benefits and other payroll deductions are withheld from your wages.  When you divide totally debts by your gross income you will land on your total debt service percentage.

Gross income / Total debts = TDS ratio

What’s considered a good total debt service ratio?

As a general rule of thumb, it’s best to have a TDS ratio of no more that 44% (including the new mortgage payment).  Typically a “good” TDS ratio is below 35%.  Your TDS ratio helps creditors determine whether you can afford new debt and how much of it!

Curious about home ownership?

In my “90 Days to Homeowner Guide” we’ll cover the following together:

• Should I keep renting?
• TDS ratio
• The buying process
• Mortgage pre-approvals
• Mastering showings
• Writing a killer offer

Email me at mike@mjkrealty.ca for a copy of my free guide.