What Can You Afford?
Buying a home is a big deal; it’s probably the largest purchase you’ll ever make. Being prepared means also understanding that expenses go beyond purchase price.
To secure your new home, you’ll likely need to arrange for a mortgage but before you do, take a look at how much you can afford each month. Based on your income and expenses, our affordability calculator can help you estimate your maximum affordable mortgage payments.
Gross Debt Service Ratio (GDSR)
This lending principle simply states that your monthly housing costs should not exceed 32% of your gross (before taxes) monthly family income.
Total Debt Service Ratio (TDSR)
This lending principle summarizes that your monthly housing cost and payments on all other debts (like loans, credit cards and lease payments) should not exceed 40% of your gross monthly income.
Once you have used the affordability calculator to estimate your maximum monthly total, you can compare this number to the mortgage payments for specific loan amounts. Enter the loan amount in our mortgage calculator and the monthly principal and interest will be calculated for you.
Arrange a Mortgage
Since you may not have hundreds of thousands of dollars at your immediate disposal, a mortgage is a loan that can help you cover the cost of buying a home.
There are hundreds of banks, credit unions and other lenders out there who would love your monthly mortgage payments. So talk to everybody and don’t be money-shy! A REALTOR® can be very knowledgeable about the different types of mortgages and can offer advice based on your needs and comfort level.
Amortization refers to the length of time it will take to pay off the whole mortgage, often as long as 25 years. The longer your amortization, the lower your monthly payments, but the more you pay in interest over time.
Refers to the initial up-front portion you pay against your home purchase. A larger down payment means a smaller mortgage (and less debt).
If you’re a first-time homebuyer with money in a Registered Retirement Savings Plan (RRSP), you can withdraw up to $25,000 without paying income tax through the Home Buyers’ Plan. If your spouse or partner is also eligible, that’s a possible $50,000 you can use towards your down payment. Ask your REALTOR® for details.
Call a mortgage broker
Mortgage brokers are another great resource. Their job is to find low lending rates and they usually don’t get paid unless you sign a mortgage through them – meaning they’re highly motivated to get you the best deal.
Often, you can take over the seller’s mortgage. This is a great option if the seller is locked into a lower interest rate than you can get right now. Your REALTOR® may have additional information.
Refers to how long the bank has agreed to lend you the money – typically from six months to five years. At the end of the term, you usually renegotiate a new term.
Interest is the cost of borrowing money, and the interest rate tells you exactly how much. Using our mortgage calculator, check out the difference between borrowing $100,000 at 6% versus 9% at the same amortization.
Keep in mind you can also choose between a fixed or variable rate. A fixed rate will remain unchanged for the entire term whereas a variable rate will fluctuate as rates increase or decrease throughout your term.
Applying for a Mortgage
- Letter of employment (including your position, your salary or rate of pay and how many years you’ve been with the company)
- List of your assets (your car, stocks, bonds, GICs, etc.)
- List of your liabilities (car payments, student loans, credit card debt, etc.)
- Social Insurance Number
- Your chequing account number
- Your lawyer’s contact information
- Information about the house you want to buy
Extra Costs to Consider
Some mortgage lenders charge a fee to process your application. Be sure to ask whether it can be waived.
Home inspection fee
A home inspection is intended to help avoid surprises and protect yourself and your investment. It usually happens a little later in the process. Don’t worry; we devoted an entire step to it.
The previous owner may have paid property tax or utilities in advance and they will want to be credited for those payments. Ask your REALTOR and lawyer what might come up on the closing date.
Your mortgage lender may need to have your new home appraised by a professional and they often pass the bill on to you. Sometimes your lender will waive this fee.
Mortgage lenders require you to carry fire and extended-coverage insurance because your home is the security deposit on the mortgage. Often you can have these payments added to your monthly mortgage payments. Shop around.
Mortgage broker’s fee
Your mortgage broker may charge a fee that’s payable on your closing date. Ask your broker to avoid any surprises.
Land survey fee
Lenders may require a survey of your property, even if it’s an existing survey. Get your lawyer on the case.
You’ll pay your lawyer for their invaluable time and “disbursements” which are the costs involved in title searches, drawing up the title deed and preparing your mortgage.
GST/HST and new homes
GST/HST doesn’t apply to resale homes but they will to new homes. If you intend to live in your new home (instead of renting it out), there is some relief. Consult your REALTOR® and/or lawyer for more information.
REALTOR commissions or fees
REALTOR commission is paid by the Sellers, not the Buyers.