Before approving a loan, major financial institutions calculate your debt ratio. The following percentages let you assess the level of indebtedness as a percentage of your gross income:
less than 30% is deemed excellent
30% to 39.99% is very good
40% or more is problematic
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As part of the loan approval process, financial institutions and the Canada Mortgage and Housing Corporation (CMHC) examine the total debt service ratio (TDS). This ratio indicates what proportion of gross income is already spent on housing-related expenses and other debt payments. This ratio is usually examined in combination to the stability of your income, your timely payments of bill and your credit score with Equifax or Transunion, prior to deciding whether or not to grant you credit.
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