If you're like most Canadians, your home is probably the most important investment you will ever make. But how do you know if you are financially ready for all the responsibilities that come with homeownership?
To help you avoid any unpleasant surprises, Canada Mortgage and Housing Corporation (CMHC) offers the following tips on how to assess your current financial situation, calculate your monthly expenses, and determine how much home you can afford:
1. Calculate your net worth. Your net worth will give you an accurate snapshot of your current financial situation, as well as an idea of how large a down payment you can afford.
YOUR NET WORTH
= Assets Minus Liabilities
Personal & Student Loans
2. Calculate your current monthly expenses to determine what kind of mortgage payment could comfortably fit into your budget. Your monthly expenses include your current housing expenses (such as rent, utilities, parking, and other fees) as well as all other regular, nonhousing-related costs (such as cable TV/Internet, debt payments, insurance, car fuel and repairs, clothing, medical and dental costs, child care expenses, groceries, entertainment, and other expenses).
3. Once you have a clear picture of your financial situation, figure out how much you can afford in monthly housing costs.
1. Your Total Housing Costs (Mortgage Principal + Interest + Taxes and Heating)
= less than 32% of gross household income
2. Your Entire Debt Load (Mortgage Payments + Student/Car Loans + Credit Cards)
= less than 40% of gross household income
4. If you have made all the necessary calculations and feel you are ready, it can be a good idea to select a lender and ask them to pre-approve you for a mortgage. Getting preapproved lets you know in advance what price range you should have in mind when you are shopping for your new home.
5. For most people, the hardest part of buying a home-especially a first home-is saving for the down payment. With mortgage loan insurance, you can purchase a home for as little as 5% down.
I hope you find this information useful. Thanks for stopping by.
Reprinted with permission from Canadian Mortgage and Housing Corporation