How much can I afford to pay for a home?

To determine 'affordability' you will first need to know your taxable income along with the amount of any debt outstanding and the monthly payments. Assuming it is your principal residence you are purchasing, calculate 32% of your income for use toward a mortgage payment, property taxes and heating costs. If applicable, half of the estimated monthly condominium maintenance fees will also be included in this calculation. Second, calculate 40% of your taxable income and deduct all of your monthly debt payments, including car loans, credit cards, lines of credit payments. The lesser of the first or second calculation will be used to help determine how much of your income may be used towards housing related payments, including your mortgage payment. These calculations are based on lenders' usual guidelines.  


What is the minimum down payment needed for a home?

A minimum down payment of 5% is required to purchase a home, subject to certain maximum price restrictions. In addition to the down payment, you must also be able to show that you can cover the applicable closing costs. Regardless of the amount of your down payment, at least 5% of it must be from your own cash resources or a gift from a family member. 


What is a pre-approved mortgage?

A pre-approved mortgage provides an interest rate guarantee from a lender for a specified period of time (usually up to 120 days) and for a set amount of money. The pre-approval is calculated based on information provided by you and is generally subject to certain conditions being met before the mortgage is finalized. Conditions examples would usually be things like 'written employment and income confirmation' and 'down payment from your own resources'. 


What is a down payment?

The down payment is that portion of the purchase price you furnish yourself. The amount of the down payment (which represents your financial stake, or the equity in your new home) should be determined well before you start house hunting. 


How can you acquire a home with as little as 5% down?

Most lenders now offer insured mortgages for both new and resale homes with lower down payment requirements than conventional mortgages - as low as 5%. Low down payment mortgages must be insured to cover potential default of payment, and their carrying costs are therefore higher than a conventional mortgage because they include the insurance premium. 


How can you use your RRSP to help you buy your first home?

If you are a first-time home buyer, the Home Buyers Plan (HBP) allows you to withdraw money from your Registered Retirement Savings Plan (RRSP) tax-free to make your down payment. The HBP is administered by the Canada Revenue Agency (CRA). There are certain conditions you must meet to be eligible for the HBP. For more information, contact CRA at www.cra.gc.ca. You can withdraw up to $25,000 from your RRSP. If you buy the home together with your spouse, partner, or someone else, each of you can withdraw up to $25,000, for a total of up to $50,000. You do not have to start paying back the money to your RRSP until two years after the purchase of the home. You must pay back all withdrawals from your RRSP within 15 years by making RRSP deposits each year, starting the second year following your withdrawal. Source: Financial Consumer Agency of Canada.


What are the costs associated with buying a home?

First and foremost, you have to make sure you have enough money for a down payment - the portion of the purchase price that you furnish yourself. To qualify for a conventional mortgage you will need a down payment of 20% or more. However, you can qualify for a low down payment insured mortgage with a down payment as low as 5%. Secondly, you will require money for closing costs. Majority of lenders will want to confirm that you have up to 5% of the basic purchase price for closing costs. 

Examples of closing costs:

  • Home inspection
  • Lawyer or notary fees and disbursements
  • Adjustment costs between buyer and seller
  • Land transfer tax (depending on where you live)
  • Property insurance
  • Moving costs
  • Appliances, garden tools, cleaning materials, etc (factor these expenses into your initial costs)

What is a fixed rate mortgage?

The interest rate on a fixed-rate mortgage is set for a pre-determined term - usually between 6 months to 25 years. This offers the security of knowing what you will be paying for the term selected.


What is a variable rate mortgage?

A mortgage in which payments are fixed for a period of one to two years although interest rates may fluctuate from month to month depending on market conditions. If interest rates go down, more of the payment goes towards reducing the principal; if rates go up, a larger portion of the monthly payment goes towards covering the interest. Open variable rate mortgages allow prepayment of any amount (with certain minimums) on any payment date.