Determine What You Can Afford

Purchasing a home involves one-time costs and monthly expenses. The largest one-time cost is the down payment. It usually represents between 5 – 25% of the total price of the property. In addition to the actual purchase price, there are a number of other expenses that you might be expected to pay for. These are listed in the following table:

Typical One-Time Expenses
Mortgage Application and Appraisal Fee    
Property Inspection (optional)    
Legal Fees    
Legal Disbursements    
Property Survey (sometimes provided by seller)    
Land Transfer, Deed Tax or Property Purchase Tax    
Mortgage Interest Adjustment and Take Over Fee
(if applicable)    
Adjustments for Fuel, Taxes, etc.        
Mortgage Insurance (and Application Fee if applicable)    
Home and Property Insurance    
Moving Expenses    
At time of application
At inspection
Closing and ongoing
Date of move          
Typical monthly costs incurred with home ownership are mortgage payments, maintenance, insurance, condo fees, property taxes and utilities. See the “What You Can Afford” Worksheet to help you estimate the approximate purchase price of a home you can afford.
“What You Can Afford” Worksheet
Step 1
Calculate your Gross Debt Service Ratio (GDS).
Most lenders say that your monthly housing expenses (principal, interest and taxes) should not exceed 30% of your family income(before personal income taxes).
To calculate your Gross Debt Service Ratio (GDS):

Take your total monthly gross (before tax) income   
Multiply it by the maximum GDS Radio (30%). x .30   
This is the maximum amount available for your mortgage payment (principal and interest), property taxes and 50% of condo fees(if applicable)             
=  $_________________ 

Example: John and Sue have a gross family income of $66,000 per year, or $5,500 permonth. No more than $1650 ($5,500 x 30%) can be applied to housing expenses.

Step 2
Calculate your Total Debt Service Ratio (TDS).
Your TDS takes into account monthly housing expenses plus other debts and loans you may have.
To calculate your Total Debt Service Ratio (TDS):
Take your monthly gross (before tax) income

Multiply it by the maximum TDS ratio (40%) x .40   

Subtract your regular monthly expenses (e.g. credit cards, car
payments, personal loans)   
This is the maximum amount available for your mortgage payment, 
property taxes and 50% of condo fees (if applicable)            
–    $_________________
=    $_________________

Example: John and Sue have a gross family income of $66,000 per year, or $5,500 per month. They also have two car payments totaling $575 per month, a student loan of$150 per month, and credit card payments of $175 per month. They can apply no more than $1,300 of their monthly income to housing costs ($5,500 x 40% = $2,200 - $900 = $1,300).

Step 3
Calculate the amount available to apply to your monthly mortgage payment. This figure will be used to calculate how much mortgage you are eligible for.
To calculate this amount: Identify the lower of your GDS or TDS:
Subtract an appropriate amount for property tax:            
This is the amount we will now use to calculate how much mortgage 
you are eligible for.            
–    $________________
=    $________________

Using the example of John and Sue, their TDS ($1,300) is lower than their GDS ($1,650) and they estimate their property taxes will be $175 per month. They have $1,125 available to apply to their monthly mortgage payment. (i.e. $1,300 - $175 = $1,125)
Step 4
Determine the Purchase Price you can afford.
  • Using the figure calculated in Step 3, find the closest matching number in column A.
  • The corresponding number in column B is your approximate eligible mortgage amount.
  • In column C record the down payment amount that you have available.
  • In column D add the numbers identified in columns B and C together.
This equals approximately the price of the home that you can afford. In the example of John and Sue, the amount calculated in Step 3was $1,125. They also have saved a down payment of $30,000. With a monthly payment of $1,125 (refer to column A) they are eligible for an approximate mortgage of $130,000 (refer to column B). With their down payment of $30,000, they can afford to buy a home worth approximately $160,000.
Monthly Payment
Eligible Amount of Mortgage 

(cost includes principle and interest payment per month basedon interest rate of 6.75% and 25 year amortization)
Down Payment Available
House Price You Can Afford

Don’t forget that the down payment must be at least 10% of the purchase price of the home, unless you qualify for Canadian Mortgage and Housing Corporation’s (CMHC) 5% down program for first-time buyers.

Please note that all amounts are approximate. Columns A & B are based on an interest rate of 6.75%. Rates do vary. If rates are higher, you would be eligible for a smaller mortgage. If rates are lower, your mortgage could be higher.

These calculations do not take into account mortgage insurance premiums for high-ratio mortgages.

I can keep you informed of current rates and refer you to a Mortgage Specialist who will help you decide the financing terms and options that are right for you.

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