Buying a Home in Canada: How Do I Calculate My Mortgage?
Buying a home in Canada get determined by its price and the buyer’s maximum mortgage. Here’s a quick overview on how you can calculate your optimal mortgage amount.
Before lenders calculate your maximum affordability, they consider the following factors:
When buying a home in Canada, you require a minimum of 5% deposit of its purchase price. If the purchase price goes beyond $500,000, then the down payment increases to at least 10% of the total cost of the home. For houses costing $1,000,000 and above, you get to pay 20% of the purchase price. The minimum down payment percentage does not consider the ratios of your debt. As a result, your affordability can get limited easily. For example, if the home purchase price is $400,000, you will have to pay a down payment of at least $20,000. If the amount is $600,000, you get to pay a minimum of $60,000. For a $1,000,000 home, you will pay a down payment of $200,000.
Debt Service Ratios
According to the rules by the Canada Mortgage and Housing Corporation (CMHC), a lender calculates your maximum mortgage based on your debt ratios from your provider. The ratio also includes your total debt and gross debt ratios. Then your down payment gets combined with the achieved maximum mortgage to determine the optimal house price you can afford.
Based on these ratios, your lender gets able to place a monthly payment that you can pay comfortably after your monthly debt obligations and housing expenses. According to GDS’s and TDS’s industry guidelines, they should not exceed 32% and 40%, respectively. The only chance you have of getting these limits exceeded is when you have a good credit score and stable income source.
If according to your mortgage option, your GDS goes beyond 39% and TDS 44%, you will get denied approval for the amount. For example, you may have a down payment of $15,000 but qualify for a $250,000 mortgage depending on your TDS and GDS score. When you add the $15,000 for the down payment, you only get $265,000 as your maximum affordability.
As illustrated above, your GDS and TDS ratio plays a vital role in determining your maximum affordability. If you are, therefore, thinking of buying a home in Canada, your affordability relies on your maximum mortgage and the home’s purchase price. Look for a reliable lender to help you calculate your optimal mortgage and fund you or contact us for more info.
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