Spring is here – and with it, a flurry of new homeowners in Canada. Based on data from the Canadian Real Estate Association, April, May and June are the three months of the year that Canadians are most active in purchasing new property.
However, buying a home (especially if it’s your first), is no walk in the park. If you’ve been thinking about becoming a homeowner this year, take the short quiz below to see if you’re financially ready.
1. Do you currently use a budgeting tool to track your monthly finances?
Correct answer = YES
If you’re not currently tracking your expenses with a budget of some kind, you’ll want to start there.
Tracking your income and what you’re spending each month will help you determine if you can afford to buy a home right now. Your budget should include categories for total monthly income, your regular household expenses (like rent, energy, usage, groceries, phone, and internet), monthly debts (including leases, loans, and credit cards) – and, of course, an estimate of any extra daily expenditures.
If you don’t already have a budget tracking tool, there are a lot of free options online like this Budget Calculator that’s offered by the Government of Canada. An excel spreadsheet will also do the trick. Whatever tool you use, the important thing is that you have a realistic picture of your total monthly expenses.
2. Is your monthly housing cost more than approximately 35% of your gross monthly income?
Correct answer = No
The Gross Debt Service (GDS) ratio is the percentage of your gross monthly income that’s allocated to your total housing costs including mortgage payments, property taxes and heating.
Your monthly housing costs shouldn’t be more than approximately 35%* of your gross monthly income.
3. Is your monthly debt more than approximately 42% of your gross monthly income?
Correct answer = No
Figure out your Total Debt Service (TDS) ratio by tallying up your loans and leases, credit card balances, and local payments and then comparing your total monthly debt to your total monthly income.
Your monthly debt load shouldn’t be more than approximately 42%* of your gross monthly income.
If you passed the quiz above with flying colours, your next step will be to determine the maximum home price that you can afford. You can easily calculate this number by using our Mortgage Affordability Calculator.
Although you’ll still want to confirm with one of our Mortgage Specialists, this calculation will give you a good idea of what you may be looking at in terms of a maximum house price and monthly mortgage payment.
The calculator also allows you to compare up to three different scenarios so that you can determine which mortgage product is right for you. After you’ve completed your calculations, you can print, save and share your results!
Next steps: Get the First-Time Home Buyer’s checklist
Once you’ve examined your finances and decided that home ownership is a growing reality for you, it’s time to make an appointment and get pre-approved for a mortgage.
To help you along and make sure you don’t miss any critical documentation, we’re giving you the First Time Home Buyer’s checklist for a comprehensive list of things to expect throughout your journey of becoming a homeowner.
If you’re feeling short on time and making an appointment at a branch seems like it’ll be difficult to fit in, contact a member of our Mobile Mortgage Team. Because they live where you do, they make it easy to get expert advice on the go.
* Meeting ratio guidelines does not guarantee approval, for educational/ guidance purposes only.