The process of buying a home can often start with more questions than answers for those who are new to Canada. In this three-part series, we share tips to help newcomers make the leap to home ownership in Canada. In the first post of the series, we shared tips on building a credit history in Canada. In this post, we will provide you with questions you should ask to help you decide how much you can spend on a house and help you understand what goes into determining mortgage affordability.

How much do you have saved to put down?

Your home’s purchase price will be determined at least in part by the amount of your down payment. Homes with a purchase price of $1 million or more will require a minimum 20% down payment. For homes under $1 million, you must have at least 5% of a home’s purchase price to put down for a loan obtained through any federally regulated lender. Mortgages with a down payment of less than 20% will require mortgage insurance offered by companies like the Canada Mortgage and Housing Corporation (CMHC), Sagen and Canada Guaranty.

You usually can’t use borrowed money for a down payment. However, you can use gifted funds, provided they are from an immediate family member, are non-repayable, and properly documented. If you are using gifted funds for a mortgage with Home Trust, a completed and signed Down Payment Gift Letter Form is required.

How much can I afford to pay for a mortgage each month?

Factors that will affect how much you can afford to pay towards your mortgage each month can include your monthly income, and how much you have saved for emergencies in addition to what you plan to use as a down payment. Mortgage affordability will also vary depending on the lender you choose to work with for your mortgage needs. CMHC suggests that your monthly housing costs – including mortgage payments and utilities — should not exceed 35% of your gross monthly income.

What are your other monthly expenses?

Depending on where you plan to buy a home, you may need to factor in expenses like a second vehicle or fares for commuter or local transit. The choice between urban and suburban living is a highly personal one, but your decision will have an impact on your monthly expenses either way. To help establish a household budget, the Government of Canada has provided a household budget planning worksheet that may help provide you with a realistic sense of the expenses you can expect when owning a home in Canada.

How much will a lender offer for your mortgage?

Naturally, your choice of home will be driven by a number of factors, but the amount of mortgage you can qualify for is undoubtedly one of the big ones. Each mortgage lender has its own qualifying protocols, but to get a general sense of what to expect, you can enter different scenarios into the mortgage affordability calculator on the CMHC website.

In 2020, Home Trust sponsored Environics research that found 81% of people who are new to Canada and planning to buy a home in the next few years felt that the process would be challenging. With this three-part Road to Home Ownership series, we hope to address some of those concerns to make buying your first home in Canada easier. Be sure to read the other posts in the series to cover some of the bases to buy a home, how to establish a credit history in Canada and which professionals you should consult when buying a home.

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