When formulating your budget, it is crucial to address the allocation of resources for mortgage payments, living expenses, and other financial considerations. As Real Estate Professional's we are ready to assist you in this process by directing you to a professional who specializes in budgeting and reviewing financial positions. Additionally, they may propose alternative financing methods, whether through traditional lenders or other institutions.
To acquire a home, a down payment as low as 5% is necessary. Fortunately, the Canada Mortgage and Housing Corporation (CMHC) offer a federal insurance program aimed at assisting Canadians in purchasing their first homes affordably. Opting for a down payment of 20% or more eliminates the requirement for CMHC insurance. Your Real Estate Professional or Mortgage Broker can provide further insights into this program.
To prepare your budget effectively, gather the following information:
- Credit card statements
- Monthly rent or mortgage payments
- Utility payments (gas, water, power, telephone)
- All other monthly expenses (e.g., food, child care, dues, etc.)
- Annual or semi-annual expenses (e.g., insurance, car repair, taxes)
- Allowance for unexpected items such as medical emergencies, travel, and education
- Non-fixed expenses (e.g., medical expenditures) for the last year, providing an estimate of the average expenses of this type
- Records or estimates of personal expenses (e.g., entertainment, travel, etc.)
After deducting your expenses from your total income, the remaining amount is your net worth. This figure offers an estimate of your current financial situation and aids in determining how much you can afford for a down payment.
Debt Servicing Ratios:
- Gross Debt Servicing (GDS) is the percentage of your monthly household income that covers your housing costs. It must not exceed 39%.
- Total Debt Servicing (TDS) is the percentage of your monthly household income that covers your housing costs and any other debts. It must not exceed 44%.
This number will help you establish the amount you can spend on your new home.
Understanding What You Can Afford:
Buying a home involves two primary costs – the initial down payment and ongoing monthly mortgage payments. The most substantial one-time cost is the down payment. Several one-time expenses and monthly costs should also be factored into your budget.
Typical One-time Expenses Include:
- Mortgage application and appraisal fee
- Optional property inspection (due at the time of inspection)
- Legal fees and disbursements (due at the time of closing)
- Land transfer, deed tax, or property purchase tax
- Home and property insurance (at closing and ongoing)
- Moving expenses (due on the date of the move)
- Property Tax Adjustments
Typical Monthly Expenses:
- Mortgage payments
- Maintenance fees (if applicable, such as condominium fees or allocated maintenance fees)
- Property and content insurance
- Property taxes
- Utilities