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KNOW WHAT YOU CAN AFFORD IN ADVANCE

You can save valuable time and energy when searching for a home by knowing what you can afford well in advance.

Generally, the rule of thumb when purchasing a home is to ensure that your monthly housing costs do not exceed 35% of your gross monthly income.

The most important considerations when buying a home are your gross household income, your credit rating, your down payment and the current mortgage interest rate.

If you have less than 20% down payment, you will be charged Mortgage Insurance Premium (see details at CMHC or Genworth link).

To determine the price of the home you will be able to purchase, there is a relatively simple formula to follow. Calculate your down payment and multiply it by five. For instance, if your down payment on a property is $40,000, you may be able to purchase a home priced at $200,000. Of couse there are a number of other factors involved as well, such as your debt load, credit score, etc. This is why it is very important that you talk to a mortgage broker, or mortgage specialist at your bank or credit union before you start looking!

After you have determined what you can afford, remember that your total monthly debt and monthly mortgage payment cannot exceed 42% of your gross monthly income. This includes mortgage payments, taxes, heating expenses, car payments, personal loans, and credit card debts.
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CMHC Mortgage Loan Insurance

Get into your home sooner. Mortgage loan insurance helps you do it. Put as little as 5% down. For most people, the hardest part of buying a home — especially a first home — is saving the necessary down payment. If you have less than 20% of the purchase price to put down, you will be required to purchase mortgage insurance through your lender. Mortgage insurance protects your lender against payment default and, by law, most Canadian lending institutions require it.

By providing Mortgage Loan Insurance to lenders, CMHC enables you to finance up to 95% of the purchase price of a home. This means you can buy a property with as little as 5% down. So if the cost is $200,000, you would need a down payment of just $10,000!

Having mortgage loan insurance means that if the borrower defaults (fails to pay) on the mortgage, the lender is paid back by the insurer.

Without the risk of losing their money, lenders have the confidence to make mortgage loans up to 95% of the purchase price of the home (subject to price ceilings), depending on the location within Canada.

Both new and resale homes are eligible for mortgage loan insurance. Here are some of the criteria that must be met:
· The home must be in Canada and must be your principal residence.

· You have a down payment of at least 5% of the purchase price of the property (20% for two-unit properties if this is an investment property and you do not plan on living in it).

· Housing payments, including principal, interest, property taxes, heating (P.I.T.H.), the annual site lease in the case of leasehold tenure and 50% of applicable condominium fees, can’t be more than 35% of your gross household income (GDS ratio).

· Your total debt load can’t be more than 42% of your gross household income (TDS ratio).

For details, see above for links to various lenders, CMHC and Genworth.