How much mortgage can I afford?
Do the math on your dream home
Buying your dream home is about more than just the purchase price. You’ll need to plan for the down payment, the monthly mortgage payments, and all the ongoing costs that go into buying and maintaining a home.
Whether you are a first-time home buyer, moving up, or moving out of town, how do you know if you can get the mortgage you need to buy the home you want?
Know your income and expenses
Whether you’re applying for a mortgage on your own or with someone else, such as a partner, spouse, or joint owner, you need to get a clear picture of your current income and expenses.
Your "net" income after taxes
Using the last two years as a guide, estimate your income based on all potential sources:
- Investment income
- Rental income
This all adds up to be your Gross Income (what you make before taxes).
Calculate the expenses you’re likely to have over the next five years. It’s not easy to live without some creature comforts, so estimate a fair amount for these things:
- Cell phone
- Car lease or payments
- Daycare/home help
- Insurance (home and auto)
- Credit card and loan balances
- Pet food, vet bills, and insurance
Don’t forget to include some future planning such as putting aside 10% of your income for savings.
How much will you be able to borrow?
Once we have all your information, a Meridian Mortgage Specialist can determine how much you can borrow. To do this, we apply the following tests:
Gross Debt Service Ratio
No more than 32% of your gross annual income should go to paying your annual shelter costs (mortgage principal and interest costs, plus property taxes, heating costs and if applicable, 50% of condo fees).
Total Debt Service Ratio
No more than 40% of your gross annual income should go to paying your annual shelter costs plus all of your other household expenses including credit card, line of credit and loan payments.
Canada Stress Test
The Government of Canada’s mortgage stress test is designed to answer the question, “Could you still afford to pay your mortgage if interest rates went up?”
Important: In some cases your Meridian Mortgage Specialist will consider ratios up to the industry standard maximums of 39% GDS and 44% TDS.
Now that you have an estimate of your income and expenses, and a better understanding of the lending process, you begin to estimate your home-buying budget using the mortgage affordability calculator.
How much have you saved for a down payment?
If your home’s purchase price is less than $500,000 you should plan for a down payment of 20%. You may be able to qualify with a lower down payment if the purchase price is under $1 million and you are willing to pay for mortgage default insurance.
Here are some examples:
|Cost of home||Down payment of 5% (on an amount up to $500,000)||Down payment of 10% (on the amount above $500,000)||Total needed for down payment|
When the purchase price is greater than $1 million, a down payment of 20% is required.
Wondering how to make the most of the money you have? Learn more about down payments.
The Meridian difference
Because we are a provincially regulated credit union, we have some flexibility in the ways we can help you afford the home of your dreams. For example, we recently introduced the Friends and Family Mortgage as a way for Members who are not part of a conventional two-income family to still enjoy the advantages of homeownership. If you and up to three other people are thinking about pooling your resources, explore our Friends and Family Mortgage.
First-Time Home Buyer?
There are government programs designed to help first-time home buyers to come up with a down payment - like the First-Time Home Buyer Incentive and the Home Buyer’s Plan.
What’s the mortgage stress test?
When you apply for a conventional mortgage, the stress test helps ensure that you can afford your monthly mortgage payments if interest rates to rise.