How Much Can You Afford?
You can save yourself a lot of time and frustration by determining very early how much you can afford to pay for your new home. You need to examine your income, expenses, investments, savings, and debt. In doing so, keep in mind upcoming events (getting married, starting a family, buying a new car) that could affect how much you have for a down payment or how much you can pay monthly.
There are formulas to help you determine how much of your income you can allocate to monthly housing costs. Visit your bank's website and use their charts to help determine how much you can afford to pay monthly by comparing your other costs or your other debts to your monthly income.
A helpful discussion of home financing can be found on the Canada Mortgage and Housing Corporation Web site under “Buying A Home.”
Similar information is available from the Canadian Bankers’ Association Web site.
And remember, there will be extras such as survey fees, legal fees, home inspection costs, mortgage insurance, provincial transfer fees and so on. The City of Toronto charges a local land transfer tax but offers a first time buyers rebate as does the Province. Normally, these will add between 1.5 and 3 per cent to the cost of your purchase. You’ll find a checklist for these items in the Financial Planning section.
Applying for a pre-qualified mortgage is the wisest course of action, because you’ll know exactly how much you can spend and what your down payment and monthly costs will be. You can often enjoy a guaranteed rate for 60 or 90 days. And you’re under no obligation to proceed.
Alternatively, many builders arrange for “cap-rate mortgages.” These are available to prospective purchasers at a mortgage rate that may be guaranteed for a year or longer. At some building sites, representatives from financial institutions will be available.