Get a free, no obligation personal loan quote with rates as low as 6.99%
Get Started You can apply with no effect to your credit score

Purchasing your first home or upgrading your current one is a really exciting decision to make but it’s also one of the most financially stressful things you can do. It can seem like there are a thousand papers to sign and tasks to accomplish. The fee and extra costs start to pile up before your eyes and it can often seem like you’ll never actually be able to afford the home of your dreams. This is why it’s important that you take into account all of the extra costs and fees before you decide on what house you want to buy. Determining exactly how much mortgage you can afford is the number one most important decision you can make when it comes to purchasing a home for you and your family.

There are a few factors that need to be taken into account when determining the amount of debt you can afford to take on. These factors include:

  • Your total household income
  • Your personal monthly expenses (car payments, bills, credit card payments)
  • All the expenses associated with owning a property (property taxes, utilities, condo fees)
  • Your current cash resources that can be put towards the house

We understand that this might all be really overwhelming and that once you start crunching the numbers a new home can seem out of reach. Purchasing a property is expensive no matter how you look at it. Figuring out your affordability and creating a budget to help you pick the best home for your money will help you stay on track and not get in over your head.

How to Evaluate Your Own Affordability

Everyone’s income is different and everyone’s budget is different so it’s important that you calculate and evaluate how much mortgage you can afford solely based on you and your financial situation. Your mortgage lender won’t approve you for a mortgage that you technically can’t afford, but they will approve you for a higher mortgage than you’re comfortable with. Our number one piece of advice to future homeowners is to decide on your own how much mortgage you are comfortable with and can actually afford to make payments on and still live the life you want. Here are a few questions to ask yourself:

  • Is a larger house worth the extra monthly cost to you?
  • Would you rather have more money to go on trips and buy the things you want?
  • Is being able to save more for a rainy day very important to you? More important than a bigger house?

Trusting your lender is important but you need to take responsibility for your debts and make sure you don’t put yourself into a situation where you might not be able to afford the life style you’ve created.

How Your Lender Determines Your Affordability

Your lender will look at two “rules”, which take into account your household income, monthly housing costs and current debt load, to decide the amount of mortgage you can afford to take on.

The first rule is that your monthly housing costs cannot exceed 32% of your gross household monthly income. Your monthly housing costs include your potential mortgage payment, taxes and any heating expenses you might have. So all of those expenses added up cannot surpass 32% of your gross income in one month.

The second rule is that your total monthly debt to income ratio typically cannot exceed 40% of your gross monthly income. Your monthly debt typically includes your housing costs, credit cards, car payments and any other debts you might have.

Down Payment

In Canada the minimum down payment for a mortgage is 5%. While 5% is a perfectly ok down payment, it’s always best to put down as much as you can afford to. The higher your down payment is the less you’ll have left to pay off. In Canada if your down payment is less than 20% you’ll be required to purchase mortgage default insurance because your mortgage will be seen as a high-ratio mortgage.

Cash Requirement

Another factor that will help you determine how much mortgage you can afford is the liquid cash you have available to spend. This cash is typically used to put towards your down payment to cover all your closing costs.

The Bottom Line

The bottom line is that you shouldn’t take on any debt that you aren’t completely comfortable with paying off in a reasonable time. A mortgage is a good kind of debt and a home is an investment in your family and your future. Just make sure you follow the steps above, determine how much you can actually afford and don’t take on more than you can handle.

Caitlin Wood avatar on Loans Canada
Caitlin Wood

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

More From This Author

Special Offers

More From Our Experts
Loans Canada places No. 228 on The Globe and Mail’s fifth-annual ranking of Canada’s Top Growing Companies.

By Caitlin Wood
Published on September 29, 2023

Loans Canada is excited to announce it has made it onto the Globe and Mail’s Top Growing Companies list for the second year in a row.
Finder Awards Finalists: Personal Loans Customer Satisfaction Awards 2023

By Priyanka Correia

Loans Canada is happy to announce it received the finalist award in the Best Personal Loan Search Platform category.
Good Debt vs Bad Debt

By Lisa Rennie

What's the difference between good debt vs bad debt? What factors determine whether debt can be considered good vs bad? Find out...
Our Review Of The Neo High-Interest Savings Account In 2023

By Trevor O'Hagan

The Neo financial savings account is the perfect way for you to build an emergency fund, save for a down payment, or build a nest egg.
Best Air Miles Credit Cards In Canada

By Lucas Elliott

Discover the best air miles credit card in Canada for 2023. Compare annual fees, bonus earn rates, sign-up bonuses, and travel perks.
Borrower Rights: High-Interest Loan Legislation In Canada

By Mark Gregorski

To better protect vulnerable borrowers, provinces have enacted legislation that sets boundaries on what alternative lenders can and can’t do.
Best No-Fee Credit Cards Canada 2023

By Daniel Schoester

Our guide covers the 9 best no-fee credit cards in Canada, comparing cash back rates, welcome bonuses, insurance, and eligibility to help maximize rew...
Exclusive Offer: Get $50 Cash Back With A Mogo Line Of Credit

By Priyanka Correia

We've have teamed up with Mogo; a leading financial services company in Canada to offer an exclusive $50 cashback offer you won’t find anywhere else!

Recognized As One Of Canada's Top Growing Companies

Loans Canada, the country's original loan comparison platform, is proud to be recognized as one of Canada's fastest growing companies by The Globe and Mail!

Read More

Why choose Loans Canada?

Apply Once &
Get Multiple Offers
Save Time
And Money
Get Your Free
Credit Score
Expert Tips
And Advice

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.

Koho Prepaid Credit Card