Calculate how much you can afford for a house
Owning a home can be exciting, but it’s not always best for everyone. Before you decide to buy a home, think carefully about the costs.
According to the Canadian Housing and Mortgage Corporation (CMHC), monthly housing costs should not exceed 35% of your monthly gross income. This includes expenses like the mortgage and utility payments.
Your total monthly debt cannot exceed 42% of your total monthly income. This includes your mortgage payments and all your other debts.
Savings for your home
To buy a house, you have to pay in advance. You also need money to pay for start-up costs.
Save a part of your monthly budget. Most employers deposit your paycheck directly into a checking or savings account. Increase your chances of reaching your savings goal by setting up automatic transfers to your savings account with each paycheck.
Saving with a Tax Free Savings Account (TFSA)
A TFSA account is an account that allows you to save or invest tax-free. You will not have to pay taxes on the money you withdraw from your TFSA account. You can also use your TFSA account to buy a home.
Saving with a Registered Retirement Savings Plan (RRSP)
RRSP is an account that allows you to save for retirement. They do not pay any tax on your savings until you withdraw from an RRSP.
First-Time Home Buyer Incentive (CMHC)
If you’re a first-time homebuyer, HBP allows you to withdraw up to $35,000 in RRSP tax-free to purchase your first home.
First Time Home Buyer Stimulus
This offer offers 5% or 10% of the purchase price of your home as a down payment.
Use of savings and investment.
If you’re thinking of buying a home in the near future, focus on building up your savings. You’ll want to keep your money safe and easily accessible.
Short-term savings and investment options may include:
- maintain an account
- Short-Term Guaranteed Investment Certificate (GIC)
- Low risk investment funds
Ask your financial institution or financial advisor about the short-term investments they offer and how they work.
paying for your house
Most people have to borrow money to buy a house. You also have to put some of your own money into the buying process.
When you buy a house, you have to pay a certain amount up front to buy the house. This is called prepayment. Your mortgage will cover the rest of the price.
A mortgage is perhaps the most important loan you will ever make. It is important that you understand the process.
Check your credit report before applying for a mortgage
Potential lenders will review your credit history before deciding whether to approve your mortgage application.
Before you start looking for a mortgage:
search for a mortgage
Lenders may have different interest rates and terms on similar mortgages. Talk to multiple lenders to find the best home financing for your needs.
Get the mortgage that suits your needs
Mortgages have different features to meet different needs. It is important that you understand the options and features.
Questions to ask yourself include:
- Do you want to get a fixed rate mortgage or interest rate that can go up or down?
- How much time do you want?
- How often do you want to pay your mortgage?
- mortgage loan insurance
If the down payment is less than 20% of the home’s price, you must take out mortgage insurance. In some cases, you may need to take out mortgage insurance even if you have a 20% down payment.
Mortgage loan insurance protects mortgage lenders in the event that you are unable to pay your mortgage. It doesn’t protect you. Mortgage loan insurance is sometimes called home mortgage insurance.
Optional mortgage life, critical illness, disability and employment insurance
Your lender may ask if you need life, critical illness, disability, and employment insurance. These products can help you pay off your mortgage or pay off outstanding mortgage debt, if:
- lose a job
- injured or disabled
- Very sick
There are significant concessions for each of these insurance products. An exemption is something that your policy does not cover. Read the insurance certificate before you buy to understand what it covers.
These insurance products are optional. You do not need to purchase this insurance to get your mortgage approved. You must agree to purchase this insurance before the lender charges you.