How do the financial institutions calculate the home loan amount? Is it

1. based on gross pay multiplied by x times (to calculatemaximum amt. eligible)
2. or is it the net pay

DIO

It depends on a lot of factors

-Loans you have
-number of credit card's you have
-CREDIT HISTORY

-GDS RATIO (Gross Debt Service Ratio):
GDS = Total monthly payments (x 100) /Gross monthly income
No more than 30% to 32%


-TDS RATIO (Total debt service ratio): TDS = Total monthly payments (x 100) /Gross monthly income
should not exceed 37% to 40% of gross annual income. A lot of lenders have it at i think 36%


It is based on the gross pay and to do a rough and quick calculation.
If you have good credit and not too many loans already. mulitpy your annual salary (can be husband and wife's both) with factor of Approximately between 3.5 or 4

so if i was making 50k i would qualify for somewhere around 175k-200k.
Just a rough calculation.
Lets see what the Expert pramod chopra has to say.

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HI DIO,


As Azazf has explained it beautifully, the GDS and TDS ratios are calculated by different banks using similar formulas but according to their own lending criteria they may keep it at different ratios.

You can find my article on this site for new home buyers a little more useful. The URL is http://canadiandesi.ca/article.php?SID=7&AID=67

In case of employed persons the banks calculate these ratios based on clients 'gross income' while in the case of 'self employed' or 'contract/commision' income earner they want to look at the income declared by them on their line 150 of the Notice of Assessment and that too they will ask for the average of 2 or 3 years income. Some time they will add back certain amounts to the tune of up to 15% of this average income.

The GDS ratio is calculated by taking in to consideration of your monthly obligation towards your house/condo cost and includes:
monthly mortgage payment instalment + heat ($75 to $100 per month) + monthly portion of property tax + 1/2 of condo fess if applicable and generally this ratio should be not more than 30% of the gross monthly income.

TDS is calculated by adding other monthly obligations to this GDS which includes any type of balances in lines of credit, car loans, credit cards, OSAP loan and if you have co-signed with some one else on any other loan. The TDS should not exceed 40% of your gross monthly income.

Now as Azazf has explained, the loan eligibility could be determined by roughly multiplying your yearly gross income with 3.5 to 3.75.

Should you need any other information or help, you can email me.

Good Luck

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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada

Here is a calculator that can help:

http://www.cmhc-schl.gc.ca/calculator/mortgage_calce.cfm

Enjoy

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