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3) Affordability is obviously one of the biggest factors that the bank will consider when deciding whether or not to give a mCan you please explain this?

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The two mortgage formulas and percentage caps used by banks to determine whether to lend to a borrower are :

  • Gross debt service ratio should not be more than 32%. Gross debt service ratio = (monthly principal + monthly interest + monthly taxes + monthly insurance) / monthly gross income. That is, the ratio of (monthly loan payments + monthly property taxes + monthly property insurance) to monthly gross income should be less than 32%.
  • Total debt service ratio should not be more than 40%. Total debt service ratio = (monthly principal + monthly interest + monthly taxes + monthly insurance + other debt payments) / monthly gross income. That is, the ratio of (monthly loan payments + monthly property taxes + monthly property insurance + other monthly debt payments) to monthly gross income should be less than 40%. Other debt payments include all other debt such as credit card, car loan, student loan etc.

The answer is (d)

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