How to estimate your debt service ratio.
Your total debt service ratio is the ratio of your debt to gross income. It's one of the ways you can understand how much you can afford for a new home, while making sure that live within your means and don’t take on too much debt or financial risk.
Keep in mind that this is only an estimate. To understand what you’re qualified for, reach out to one of our Mobile Mortgage Specialists.
Use our mortgage calculator to get an idea of what your payments could be.
Include condo fees, property taxes, mortgage insurance and heating costs. Read our break down of additional housing costs for a full list.
Consider credit card debt, car loans and student loans.
To find this number, multiply your gross income by 0.4. Our budget calculator is an easy way to do the math.
For example
If your gross income is $4,000, your monthly obligations shouldn’t be more than $1,600.
Let’s break it down.
Seems pretty simple, right? But how can you estimate the costs of buying and owning a home before you’ve even done it? We’re here to help. Let’s walk through the costs that go into calculating your total debt service ratio.
Your down payment.
The size of your down payment will affect your monthly payments and may also come with additional costs. To estimate how much you could put down, use our mortgage calculator
High-ratio down payment
When you put down less than 20% of the home’s purchase price, your mortgage is considered a high-ratio mortgage. This means you’ll need:
- A mortgage amortization period that's no longer than 25 years
- Mortgage default insurance to protect your lender in case you can’t make a payment
You can use our mortgage calculator to estimate the cost of insurance premiums, which are based on the size of your down payment. You can choose to pay in a lump sum on closing or installments over the length of your mortgage.
Conventional down payment
When you put down 20% or more of the home’s purchase price, your mortgage is considered a conventional mortgage. This means you:
- Can choose to have an amortization period of up to 30 years
- Don’t have to pay for additional mortgage default insurance
Buying your first home in Canada?
Non-permanent residents must make a minimum down payment of 10% of the purchase price. Permanent residents can make a minimum down payment of 5% of the first $500,000 of lending value and 10% of the remainder of the lending value up to a maximum value of $1 million. The CMHC has a newcomer program that can help with finding affordable housing.
Additional housing costs.
On top of your down payment and your monthly mortgage payments, here are other costs you should be aware of in your home-buying journey.
You won’t have to include these costs when calculating your total debt service ratio, because you’ll only pay them once, but keep them in mind when figuring our your budget.
Purchase fees
- Home inspection fees
Although it’s not required, you may want to have the home inspected by a certified inspector.
Closing costs
- Legal fees
You’ll need a lawyer or notary to register the mortgage and complete the legal documents. - GST/PST
If the home is new and has never been sold before, you’ll be charged sales tax on the purchase. - Property transfer tax
You may need to pay tax of 1% on the first $200,000 of the home’s purchase price and 2% on the balance. Check the Government of BC’s First-Time Home Buyers’ program to see if you are exempt from this fee. - Appraisal fees
The appraisal determines the value of the home you plan to buy.
Optional costs
- Renovations
Is your house move-in ready or a fixer upper? Consider any renovations you plan to do in the near or far future. - Moving costs
Whether you’re hiring professional or leaning on friends, factor in the costs of transferring your belongings to your new home.
Insurance
- Home insurance
Home insurance protects your home and its personal contents. - Payment protection insurance
To make sure your mortgage balance is paid in case of unexpected events, like death, disability, illness or job loss, Vancity’s insurance coverage is highly recommended.
Other fees
- Strata fees
Maintenance fees must be paid monthly on the purchase of a townhome or condominium. The fees are based on the size of your unit and set by your strata council. - Property tax
This must be paid annually on any home you own in BC directly to your municipality. If you’d like help budgeting or saving for this payment, speak to one of our Mobile Mortgage Specialists. - Utilities
Depending on the services available in your area, you may need to pay separate bills for heating, electricity, water and other services.
Why get pre-approved.
Using our calculators to estimate your costs and payments will give you an idea of what you can afford, which should help with saving and planning. But if you’re ready to start house-hunting, it might be time to get pre-approved. You’ll officially know the maximum amount you can borrow and the interest rate you’ll pay on a mortgage.
A pre-approved mortgage agreement is valid for 90 days, so you have time to explore the market and find the home that’s right for you. When you do, you can make an offer confidently knowing that your financing arrangements are ready to go.
