How Much Can You Afford?



Homes come in every size, style and price range. Knowing what you can afford at the beginning of your search saves you time and disappointment later on. The following calculations outline the process financial institutions use to determine how much you can afford.

FIRST AFFORDABILITY RULE Your monthly housing costs should be no more than 32% of your average gross monthly income. This percentage is known as your gross debt-to-income or gross debt service (GDS) ratio. Housing costs include: your monthly mortgage payment (principal and interest) property taxes heating expenses 50% of condo fees (if applicable)


Your monthly debt load should be no more than 40% of your average gross monthly income. This percentage is known as your total debt-to-income or total debt service (TDS) ratio.

Your monthly debt load includes:

  • housing costs (amount calculated in rule 1)
  • car loans or leases
  • credit card payments
  • line of credit payments
  • other mortgage payments

The maximum amount you can afford to spend on a home depends on these numbers and the size of your down payment.

In addition to GDS and TDS ratios, financial institutions base their lending decision on your credit history, job stability and the amount of your down payment. Interest rates also affect the amount of financing you will be able to obtain.


It is important to be qualified or pre-approved for financing before you start looking for a home. This lets you and your RE/MAX Hallmark REALTOR® know what you can afford as well as providing a written confirmation or certificate for a fixed interest rate good for a specific period of time. To obtain pre-approval, contact your RE/MAX Hallmark REALTOR® or mortgage broker. The benefit of a mortgage broker is that he or she operates independently of the lender and therefore can assist you in finding the best financial product at the best rate from a variety of sources and usually at no expense to you.


When purchasing real estate, a REALTOR® can be an invaluable resource if you remember your responsibilities:

  1. Work with just one REALTOR®
  2. Make sure you tell your REALTOR® everything
  3. Always tell other REALTORS® you are already working with a REALTOR®
  4. Have a Buyer Representation Agreement signed