Knowing your budget is the first and most important step. There are a lot of expenses you might not even know about. Do you have enough money for a down payment?
How much will a bank will lend you?
The first step in determining how much a bank will lend you is to understand how much you can afford each month. This is determined using TWO LENDING PRINCIPLES:
1.) FIRST lending principle
That your monthly housing cost should not exceed 32% of your gross monthly family income. This principle is known as the Gross Debt Service (GDS) ratio calculation.
GROSS MONTHLY INCOME (Before Tax) X 32% = TOTAL MONTHLY HOUSING PAYMENT YOU CAN AFFORD
That includes Bank Mortgage, Property tax, Utilities, insurance and Condo fee (if applicable). This amount should nor be more than 32% of your Gross monthly income.
2.) SECOND lending principle
That Total Debt Service (TDS) ratio calculation, is that your monthly housing cost and payments on all of your other debts (including loans, credit card and lease payments) should not exceed 40% of your gross monthly income.
ASPECTS TO CONSIDER:
- Home Inspection
- Lawyer fee
- Moving Cost
- Hst on House, if Applicable
- Land Transfer Tax
- CMHC fee (Mortgage back Security) if down payment less than 20% of home price.
- Amount size of down payment
- Interest Rate
- Years on Mortgage