Homebuying Step by Step: Your Guide to Buying a Home in Canada
Calculation 2: How much can you afford? Calculate how much you can afford to spend on housing each month without putting your financial health at risk. These two simple rules will show you what you can afford to pay for a home. Understanding these rules can also help you when it’s time to get approved for a mortgage.
Affordability rule 1 Your monthly housing costs should be no more than 32% of your average gross monthly income. This percentage is known as your gross debt-to-income or gross debt service (GDS) ratio. Housing costs include: your monthly mortgage payment (principal and interest) property taxes heating expenses 50% of condo fees (if applicable)
Affordability rule 2 Your monthly debt load should be no more than 40% of your average gross monthly income. This percentage is known as your total debt-to- income or total debt service (TDS) ratio. Your monthly debt load includes: housing costs (amount calculated in rule 1) car loans or leases
credit card payments line of credit payments other mortgage payments
The maximum amount you can afford to spend on a home depends on these numbers and the size of your down payment. For first-time buyers, saving a down payment can be the hardest part of buying a home.
Use the Affordability rules worksheet in Step 2 of the workbook.
Calculation 3: Figure out the upfront costs Figure out how much you need to save to cover the upfront costs associated with buying a home. For example, have you saved enough to pay the following expenses? Down payment — the part of the home price that is paid when you make an offer to purchase Home inspection and appraisal fees Insurance costs — including property insurance, mortgage loan insurance, etc. Land registration fee — based on a percentage of the purchase price of the property Prepaid property taxes and utility bills — you may have to reimburse the seller for bills paid in advance Legal or notary fees Potential repairs or renovations Moving costs GST/HST/QST on the purchase price (for newly built homes) or on the mortgage loan insurance (if applicable)
Use the Upfront purchase costs worksheet in Step 2 of the workbook.
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