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. In addition to considering what the ratios say you can afford, make sure you calculate how much you think you can afford. If the payment amount you are comfortable with is less than 32% of your income you may want to settle for the lower amount rather than stretch yourself financially. Make sure you don’t leave yourself house poor. Structure your payments so that you can still afford simple luxuries.
Lenders will generally accept a gift from a family member as an acceptable down payment provided a letter stating it is a true gift, not a loan, is signed by the donor. Where the mortgage loan insurance is provided by Canada Mortgage and Housing Corporation (CMHC), the gift money must be in the your possession before the application is sent in to CMHC for approval.
Mortgages with less than 20% down must have mortgage loan insurance provided by either CMHC or GE.
insurance is provided by GE Capital this is not a requirement. See ‘what is mortgage loan insurance?’ for further information.
resources’, for example.Most successful real estate professionals will want to ensure you have a pre-approved mortgage in place before they take you out looking for a home. This is to ensure that they are showing you property within your affordable price range.
In summary, a pre-approved mortgage is one of the first steps a home buyer should take before beginning the buying process.
The larger the down payment, the less your home costs in the long run. With a smaller mortgage, interest costs will be lower and over time this will add up to significant savings.
:appraisal and legal fees
:an application fee for the insurance
:the payment of the mortgage default insurance premium (although the amount of the premium may be added to the mortgage amount).
Increasing your payment frequency schedule
Making principal prepayments
Making Double-Up Payments
Selecting a shorter amortization at renewal
contact CRA at www.cra.gc.ca.
How much can you withdraw?
– 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.
– The withdrawal from your RRSP does not need to be included in your income on your annual
income tax return, and no tax is taken off the money you withdraw.
What is the payback period?
– You don’t have to start paying back the money to your RRSP until two years after the purchase of
– 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. CRA will determine what your minimum yearly repayment will be and will notify you once you need to start repaying the amount.
– If you do not repay the amount due in a given year, it is included in your taxable income for that year and you’ll have to pay income tax on this amount.
source: Financial Consumer Agency of Canada
Secondly, you will require money for closing costs (up to 2.5% of the basic purchase price).
If you want to have the home inspected by a professional building inspector – which we highly recommend – you will need to pay an inspection fee. The inspection may bring to light areas where repairs or maintenance are required and will assure you that the house is structurally sound. Usually the inspector will provide you with a written report. If they don’t, then ask for one.
You will be responsible for paying the fees and disbursements for the lawyer or notary acting for you in the purchase of your home. We suggest you shop around before making your decision on who you are going to use, because fees for these services may vary significantly.
There are closing and adjustment costs, interest adjustment costs between buyer and seller and (depending on where you live) land transfer tax – a one-time tax based on a percentage of the purchase price of the property and/or mortgage amount.
Finally, you will be required to have property insurance in place by the closing date. And you will be responsible for the cost of moving.
Remember, there will be all kinds of things you’ll have to purchase early on – appliances, garden tools, cleaning materials etc. So factor these expenses into your initial costs.
Before selecting your mortgage term, we suggest you answer the following questions:
1. Do you plan to sell your house in the short-term without buying another? If so, a short mortgage term may be the best option.
2. Do you believe that interest rates have bottomed out and are not likely to drop more? If that’s the case, a long mortgage term may be the right choice for you. Similarly, if you think rates are currently high, you may want to opt for a short to medium length mortgage term hoping that rates drop by the time your term expires.
3. Are you looking for security as a first-time home buyer? Then you may prefer a longer mortgage term, so that you can budget for and manage your monthly expenses.
4. Are you willing to follow interest rates closely and risk their being increased mortgage payments following a renewal? If that’s the case, a short mortgage term may best suit your needs.
The Mortgage Payment
For most home buyers, this is the largest monthly expense. The actual amount of the mortgage payment can vary widely since it is based on a number of variables, such as mortgage term or amortization.
Property tax can be paid in two ways – remitted directly to the municipality by you, in which case you may be required to periodically show proof of payment to your financial institution; or paid as part of your monthly mortgage payment.
In some municipalities, these taxes are integrated into the property taxes. In others, they are collected separately and are payable in a single lump sum, usually due at the end of the current school year.
As a home owner, you’ll be responsible for all utility bills including heating, gas, electricity, water, telephone and cable.
Maintenance and Upkeep
You will also have to cover the cost of painting, roof repairs, electrical and plumbing, walks and driveway, lawn care and snow removal. A well-maintained property helps to preserve your home’s market value, enhances the neighbourhood and, depending on the kind of renovations you make could add to the worth of your property.