How much mortgage can I afford?
The first step in searching for your home is understanding how large of a mortgage you can afford. With a few inputs, you can determine how much mortgage you may be comfortable with and the potential price range of your future home. Knowing your total household income, how much you’ve saved for a down payment, and your monthly expenses (car payments, loan payment, living expenses, and so on), plus new expenses you’d take on (property taxes, condo fees, utilities), you can get a reasonable estimate. Learn more about factors that can affect your mortgage affordability.
How to estimate affordability
To estimate mortgage affordability, lenders will use two standard debt service ratios: Gross Debt Service (GDS) and Total Debt Service (TDS). According to the Canadian Mortgage and Housing CorporationNote 1:
List of 2 items
- – GDS is the percentage of your monthly household income that covers your housing costs (including mortgage payments, condo fees, utilities and taxes). It should be at or under 35% of your pre-tax household income.
- – TDS is the percentage of your monthly household income that covers your housing costs and any other debts (including car payments and other loan expenses). It should be at or under 42% of your pre-tax income.
How your down payment affects affordability
The amount you have saved for a down payment is also another important piece of information to help determine affordability. Depending on the purchase price of a home, there are minimum amounts required for your down paymentNote 2:
Table – Minimum amount of downpayment required based upon the purchase price of the home
| Purchase price of your home | Minimum amount of your down payment |
|---|---|
| Less than $500,000 | 5% of the purchase price |
| $500,000 to $999,999 | 5% of the first $500,000 of the purchase price 10% for the portion of the purchase price above $500,000 |
| $1 million or more | 20% of the purchase price |
Keep in mind that if your down payment is less than 20% of the price of your home, you’ll need to purchase mortgage default insurance, which can be added to the principal amount of your mortgage.
Sources:
Note 1Canada Mortgage and Housing Corporation (CMHC), 2020
Note 2Government of Canada, 2019