At the first time buyer seminar hosted by the Sun and ReMax, I said that all lenders appraise your ability to repay a mortgage by the same rules. These ratios, termed GDS (Gross Debt Service) and TDS (Total Debt Service), are the proving ground for all lender decisions on whether or not you will get approved to borrow the Lender's money. The system calls for maximum payments on the house (inclusive of taxes and heat) not to exceed 32% of gross family income, and all payment of debt (inclusive of house) not to exceed 42% of gross family income. First time buyers can qualify with ratios of 35% and 42% respectively. If you fit the guidelines, and your credit is good, chances are you will get approved. If your payment to income ratios exceed the norms, no matter how good your credit is, chances are the Lender will decline your application. We are not going to challenge the rules today, we are going to look at a safety net, even if you qualify.

Marc and Celine enjoy a combined family income of $58,000. They have a monthly car loan payment of $400 and credit card payments of $80. According to the rules described above, if the property taxes and heat account for $240 per month, then they qualify for mortgage payments of $1306. This is how we arrived at those figures:

$58,000 times 32% = $18560 per year, divided by twelve = $1546 per month, less the heat & taxes = $1306 monthly mortgage pmt.

That payment, amortized over 25 years at a rate of 9.125% (three year term) would indicate that our couple qualify for a mortgage of $156,000. Even coupled with their other debts, their GDS & TDS read 32 & 42% of salary, therefore, they meet the criteria.

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Now let's look at our couple from a common sense approach. Hearing that they qualified gave them a feeling of accomplishment. Their Lender was happy to issue a pre-approval to them. They went out to celebrate. At dinner, Celine mentioned to her hubby that she was somewhat worried that their mortgage payments of $1306 exceeded their rent payment of $850 by a whopping $456 per month. How will they afford that? Marc had not thought of it in those terms. He had became lost in the novelty of being approved.

Indeed, being at the higher limits of GDS & TDS, normal Ottawans could term this the "Kraft Dinner Syndrome". You must analyze from a budget perspective, your own affordability of this new venture. Lending Institutions as a whole will attempt to satisfy your application for mortgaging, trusting that you can indeed live up to the norms. Very few lending officers will analyze the difference between your present day rent and your new mortgage payments, although, from my perspective, this is indeed an integral part of qualifying.

Before desert was finished, Marc and Celine had decided that even if the Lender had approved them on their qualification standards, soul searching, and budget crunching indicated the purchase of a less expensive home. They decided to buy a freehold townhouse instead of a detached home with a purchase price of $128,000. With a minimum downpayment of $13,000 and monthly payments of less than a $1000, their GDS & TDS now read, 25% & 35%. They can visualize making the jump from $850 to $1000 to become home owners.