How much can I afford?

How much can I afford?

Ready to start looking for your first condo? The first step is figuring out what you can afford. There's a bit more to it than calculating your monthly mortgage payment – you'll need to factor in a big chunk of cash for your down payment, add in taxes, insurance and closing costs, subtract any money you owe, then see how much a lender will be willing to let you borrow based on those numbers.

What is affordability based on?

  • Your total household income

  • Your monthly expenses, car payment, student loan payments, etc.

  • Home ownership costs (property taxes, maintenance fees, utilities, etc.)

  • How much of a down payment you have

  • If you have enough cash on hand for closing costs

You can figure out some rough numbers yourself with an online calculator. The CMHC has a very simple one that will give you an idea of what your monthly payments might be. Ratehub has a more in-depth affordability calculator that factors in down payment, working costs, closing costs and more.

How banks figure out how much they'll lend you
Lenders look at two things when deciding how much you qualify for:

1.Your Gross Debt Service (GDS) ratio. The Canadian Mortgage and Housing Corporation (CMHC) has a rule that says your monthly costs (mortgage payments, maintenance fees, taxes and heat costs) can't be more than 32% of your monthly income before taxes.

Do the math

Mortgage payment + Taxes + Heat + Half of your maintenance fees

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Then divide by your annual income.

If that number comes in at 32% or less, you're in good shape.

2.Your Total Debt Service (TDS) ratio. The other CMHC rule has to do with how much debt you can carry. Basically, all your debt – including your monthly housing costs – can’t be more than 40% of your monthly income before taxes. But before you look at that number and say “Wow! 40% of my paycheque is a lot to work with,” don't forget that percentage includes any other debt you may have – car payments, student loans, credit card interest, etc.

Do the math

Mortgage payment + Condo fees + Utilities + Loans + Car payments + Credit card payments / interest

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Then divide by your annual income

If that number is higher than 40%, you'll need to look at a cheaper place – or find another way to cut down your debt load.

Those numbers aren’t set in stone.
32% and 40% are the official CMHC numbers. But if you have good credit and a steady income, banks are allowed to go to a max of 39% and 44%, so many online calculators are based on those higher percentages.

Why so many rules?
The government puts them in place to protect us. If you know much about the 2008 housing debt crisis in the US, that happened partly because homebuyers were allowed to borrow more than they could reasonably afford. (There were other reasons for the crisis, of course, but debt load was a contributing factor.) By limiting how much debt Canadian buyers are allowed to take on, the CMHC is ensuring we don't bite off more than we can chew – and the banks face less risk from people defaulting on their loans, which is bad for the economy.

Want to know exactly how much you can afford?
Talk to your Condo Pro. They’ll connect you with a great mortgage broker who will figure out the numbers for you – and help you get pre-approved for a mortgage so you can start your search with a solid number in mind.

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