How Much Can You Afford?
RE/MAX Hallmark REALTORS® deliver results. Homes come in every size, style and price range. Knowing what you can afford at the beginning of your search saves you time and disappointment later on. The following calculations outline the process financial institutions use to determine how much you can afford.
FIRST AFFORDABILITY RULE
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)
- 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. In addition to GDS and TDS ratios, financial institutions base their lending decision on your credit history, job stability and the amount of your down payment. Interest rates also affect the amount of financing you will be able to obtain.
The maximum amount you can afford to spend on a home depends on these numbers and the size of your down payment. In addition to GDS and TDS ratios, financial institutions base their lending decision on your credit history, job stability and the amount of your down payment. Interest rates also affect the amount of financing you will be able to obtain.
Avoid Crowded Scenes Pre-Approval
It is important to be qualified or pre-approved for financing before you start looking for a home. This lets you and your RE/MAX Hallmark REALTOR® AMIR FARd team know what you can afford as well as providing a written confirmation or certificate for a fixed interest rate good for a specific period of time. To obtain pre-approval, contact your AMIR FARDvor mortgage broker. The benefit of a mortgage broker is that he or she operates independently of the lender and therefore can assist you in finding the best financial product at the best rate from a variety of sources and usually at no expense to you.
The maximum amount of conventional mortgage is 80% of the p1SChase price. The amortization or length of time in which to repay the loan is usually 25-30 years. The term of the mortgage is the number of months or years, usually six months to five years, for which the rate of interest is set. High Ratio Mortgages For most people the hardest part of buying a home, especially the first one, is saving for the necessary down payment. With mortgage loan insurance, you can put as little as 5% down payment on homes up to $500,000. Mortgage loan insurance, protects the Lender and, by law, most Canadian lending institutions require it. The cost of high ratio mortgage loan insurance is in the form of a premium. The premium is calculated as a percentage of the principal and can be paid in a single lump sum or be added to your mortgage and included in your monthly payments
Loan To Value Ratio Up to and including 65% Premium Rate
65.01% to 75% 0.60%
75.01% to 80% 2.40%
80.01% to 85% 2.80%
85.01% to 90% 3.40%
90.01% to 95% 4.00%
Using Your RRSP To Purchase A Home
The Home Buyers' Plan (HBP) allows each RRSP plan holder to borrow up to $25,000 from the plan to use towards the down payment of a home. Couples with separate plans can borrow up to $25,000 each up to a total of $50,000. Home buyers using this program have up to fifteen years to return the borrowed funds, interest free, to their RRSP. Using these funds towards the purchase of a home does not deregister the plan unless the monies are not returned as agreed. This allows participants to retain the tax advantages the RRSP offers.
+ You are a first time home buyer or have not owned a principal residence in Canada during the past four years
+ The RRSP must have been in existence for at least 90 days
- You must be a resident of Canada both at the time the funds are withdrawn and at the time the home is acquired
- A minimum of 1/15 of the amount is withdrawn has to be repaid annually
Not every RRSP is eligible under this program. Check with your investment firm to see if you qualify. Also, advise your lawyer well before closing that you will be using these funds
The following is an estimate of the costs involved in purchasing a home and the normal operation of a home in Ontario. Costs vary from one area of the province to another so these figures should be used only as a guide. Closing Costs Home Inspection A home inspection is strongly recommended for most residential properties and will usually be a condition of the offer. Your RE/MAX Hallmark REALTOR® can assist you in choosing your home inspector. This ranges from $350 $500 depending on the size and value of the property. Termite Inspection You may wish to hire a termite inspector as well as a home inspector if you are buying in an area of the city where termites are known to be a problem. This could add $250 to $350 to the cost of your inspection. Appraisal Fees is usually between $250 to $350. Land Survey When you make an offer on a freehold property you will usually ask the Seller to provide a copy of the survey for the property. The purpose of this survey is to show the boundaries as well as the footprint of the building on the site. If there is no survey available, you may wish to hire a surveyor to prepare one at a cost of approximately $1,000 to $2,000. When you apply for a mortgage, the lender will want to see an appraisal on the property to ensure that the price you are paying falls within the accepted range of value for that type of property and that area of the city. The fee for this is usually $250-$350
When you make an offer on a freehold property you will usually ask the Seller to provide a copy of the survey for the property. The purpose of this survey is to show the boundaries as well as the footprint of the building on the site. If there is no survey available, you may wish to hire a surveyor to prepare one at a cost of approximately $1,000 to $2,000.
Title insurance provides insurance against the future costs of remedying most problems with the title on your property. Ask your RE/MAX Hallmark REALTOR® to explain the benefits and cost of this service.