When you are planning to buy a home, the first step is to figure out how much you can afford. Try out our Affordability Calculator!
***This Affordability Calculator is for education purposes only. We cannot guarantee that all calculations are accurate, and the displayed information should not be relied upon without verification. ***
Factors that can affect your mortgage affordability:
Down Payment
Your down payment affects both the total amount you can borrow and the monthly payments. For instance, if your down payment is less than 20%, you are restricted to properties below $1 million and you have to purchase “mortgage loan insurance”, underwritten by the Canadian Housing and Mortgage Corporation (CMHC). CMHC has a specific requirements that you have to meet plus a premium that must be paid. Of course, that insurance premium increases the amount borrowed, as well as your monthly payments. On the other hand, if your down payment is over 20%, you are eligible to purchase properties for more than $1 million, and you are not required to buy mortgage insurance.
Your household Income and Expenses
Your annual household income is the total amount of money you earn before taxes. Lenders will ask you to substantiate your income with your pay stubs. They will also ask you to itemize your expenses, such as food, gas and phone. as well as the estimated housing costs, including property taxes, housing insurance, electricity, heating, etc.
Current Debt obligations
Outstanding Debt affects how much you will be able to pay per month for mortgage, and it is a red flag to lenders. As a result, you may be asked to pay off car loans, balances on credit cards and other similar consumer debt before the mortgage is given.
Your Credit Rating
A higher credit score increase your chances to be eligible for mortgage insurance and get better terms on your mortgage. You can check your credit score for free on CreditKarma.
Mortgage rates
Each lender considers the factors above when deciding what mortgage rate to offer. That’s why you should always shop around for the lowest mortgage interest rate! A lower rate will lower your monthly mortgage payments, making it easier to afford your dream home.
Try changing some of above variables: reduce your personal spending, pay off some of the dept, bring your credit score in good order, save more for the down payment and try the Affordability Calculator again. Also, don’t forget to leave yourself some room in your budget! You want to be able to enjoy your home/life and have some flexibility to cope with unexpected expenses. The alternative, living with constant financial stress is not fun!
Other considerations
Always consult a mortgage professional before making personal financial decisions. We listed a few mortgage brokers on our Professionals & Contractors page.
Try out our Mortgage Calculator to figure out your monthly mortgage payments.
Try out our Property Transfer Tax Calculator to figure how much Tax you will have to pay on the Completion Date.