Renovation costs You may find a “fixer-upper” –– an inexpensive home in need of repair. One general rule is that renovation always takes longer than, and costs more than, you think. CMHC publishes a lot of helpful information on renovation. Contact your local CMHC office to find out more or order our renova- tion catalogue. (See page 41.)
How Much Can You Afford?
The shortest and best answer to that question is: it depends –– on a number of factors. The most important are your gross household income, your
down payment and the mortgage interest rate. Lenders also consider your assets and liabilities. Your own lifestyle and debt comfort zone also come into play.
If you understand these variables, you can exam-
ine all your options. You can make the best choice for you and even save money. AffordAbility, a new
CMHC computer software program, can help you work out all your down payment and mortgage options. (To purchase call 1-800-668-2642.)
Meanwhile, use the table below and the Affordability Guide on the next page to get an idea of the maximum home price you can afford and the maximum you can afford to pay in monthly housing costs.
Lenders follow these two simple rules to deter- mine how much you can afford in monthly housing costs:
The first affordability rule is that your month- ly housing costs shouldn’t be more than 32% of your gross monthly income. Housing costs include month- ly mortgage principal and interest, taxes and heating expenses –– known as P.I.T.H. for short. If applicable, this sum also includes half of monthly condominium fees and all of the annual site lease in the case of leasehold tenure
Lenders add up these housing costs to determine what percentage they are of your gross monthly income. This figure is your Gross Debt Service (GDS) ratio.
The second affordability rule is that your entire monthly debt load shouldn’t be more than 40% of your gross monthly income. This includes housing costs and other debts such as car loans and credit card payments. Lenders add up these debts to determine what percentage they are of your gross monthly income. This figure is your Total Debt Service (TDS) ratio.
Based on these ratios, lenders will advise you of the maximum home price they think you can afford.
Keep in mind that most homebuyers today keep their debt ratios comfortably below the maximums prescribed above. The lower your debt load, the more affordable your home and lifestyle will be.
STEP 3 • AFFORDABILITY
Figures are rou
nded to the nearest $100.
This table gives you an idea of the maximum home price you can afford. These estimates take into account household income and the percentage down payment you have. They assume a mortgage interest rate of 8%, average tax and heating costs in Canada, and the mortgage an average Canadian would qualify for based on a 32% debt service ratio. Please note that for loans greater than 90% of the value of the home, a maximum house price of up to $250,000 may apply, based upon the price levels in your community. Contact your lender for the maximum price in your area.
Income, Home Price and Downpayment Guide
5% Down Maximum
10% down Maximum
25% down Maximum