Before you decide to purchase a new home or to upgrade your current home, you should assess your financial situation. Consider the following:

• Evaluate your personal situation: do you have a reliable income, minimal debt and sufficient savings?
  
• Lenders generally use two financial ratios to assess your mortgage qualification.

1. The first, Gross Debt Service Ratio (GDS), is a calculation of the percentage of your gross annual income that will be required to cover payments associated with housing (mortgage principal, interest, property taxes and insurance). Lenders are comfortable with a GDS of 30 to 32% or less.
2. The second, Total Debt Service Ratio (TDS), is a calculation of the percentage of your gross annual income required to cover payments associated with housing (as above) and all other debts and obligations, such as car loans and credit cards. Lenders look for a TDS of 40 to 42% or less.
   

• Here are several useful links which will help you consolidate your financial information and get an indication of your borrowing capacity:
  • The first link (http://www.cmhc-schl.gc.ca/en/co/buho/hostst/index.cfm) outlines some steps in assessing your financial situation;
  • The second link (http://www.cannex.com/canada/english/mort/mort02.html) provides a comparison of current mortgage rates;
  • The third link (http://www.cmhc-schl.gc.ca/en/co/buho/buho_007.cfm) gives you a basic calculator to assess your purchasing power;
  • The final link (http://www.ontarioequity.com/cgi-bin/mortgage_calculator.cgi) provdes a simple calculator that outlines mortagage payments under different payment terms and their associated amortization schedules.

• Use these tools only as a preliminary assessment of home affordability.  Then speak with several financial institutions regarding home financing.  Keep in mind that rates, terms and payment options can vary significantly between lenders and can dramatically affect the amount you pay over the term of the mortgage.

• Through this process, identify your "affordability range".  Get pre-approved for what you consider a comfortable mortgage amount .  This will help you avoid disappointment and frustration in your new home search.