The borrower wants to know how much can he borrow. First, he went to many website to use online affordability calculator. He got a quote from the calculator. Second, he asks a mortgage lender. The mortgage lender gave him a quote. Finally, he asks another mortgage lender. The latest mortgage lender gave him another quote which does not match the previous quotes. Nobody is at fault here. Each lender has unique criteria on how much can you qualify for the maximum mortgage loan.

Here are the three common factors to qualify for mortgage loan:

- In Loan to Value ratio, a certain value of property must not exceed the loan.

- In Gross Debt Service (GDS) ratio, a percentage of gross income must not exceed the payment.

- In Total Debt Service (TDS) ratio, a percentage of gross income must not exceed payment, home expenses, and total debt.

Maximum Monthly Mortgage Payment

The borrower earns $120,000 annual gross income. And, he pays $1,500 monthly obligations, $3,500 annual property tax, and $300 annual home insurance. Also, he is contemplating on a 6.5% interest rate and 30 year mortgage. Most online affordability calculator uses GDS 32%, TDS 40%, and Loan to Value Ratio 75%.

Here is the GDS calculation:

= [(annual gross income * GDS rate) - annual property tax - annual home insurance] / 12

= [($120,000 * 0.32) - $3,500 - $300] / 12

= $2,883.33

Here is the TDS calculation:

= ([(annual gross income * GDS rate) - annual property tax - annual home insurance] / 12) - monthly obligations

= ([($120,000 * 0.40) - $3,500 - $300] / 12) - $1,500

= $2,183.33

The maximum monthly mortgage payment is the lesser between GDS and TDS. Your maximum monthly mortgage payment is $2,183.33, since TDS is lesser than GDS.

Maximum Mortgage Amount

Here is the Annuity calculation:

= $2,183.33 [1 - (1 + [6.5% / 100 / 12])-30 * 12 ] / [6.5% / 100 / 12]

= $2,183.33[1 - (1 + [0.005417])-360 ] / [0.005417]

= $345,426.96

The maximum mortgage amount comes to $345,426.96

Loan to value ratio (LVR)

The usual Loan to Value ratio for the first time borrower is 75%. Loan to Value Ratio tells us that the borrower can borrow $460,569.28 with $115,142.32 down payment ($460,569.28 Loan to Value ratio - $345,426.96 maximum mortgage amount).

Here is LVR calculation:

= Maximum mortgage amount / Loan to Value Ratio 75%
= $345,426.96 / 0.75
= $460,569.28