Unless you are an independently wealthy individual, it is likely that you will require a mortgage to cover a proportion of the cost of your dream property. As well, there are onetime costs associated with home purchases as well as ongoing monthly costs. All must be factored in to the calculation of what you can afford.
Here is a breakdown of the costs of buying a home:
Initial One-Time Costs:
- Down Payment
- Legal Fees
- Land Transfer Tax
- Title Insurance
- Inspection Fees
You must also budget for Ongoing Monthly Costs:
- Mortgage payments
- Maintenance expenses
- Insurance premiums
- Property Taxes
Financial institutions generally determine loan amounts based on two lending principals. These are the Gross Debt Service Ratio (GDSR) and the Total Debt Service Ratio (TDSR).
- Gross Debt Service Ratio (GDSR) calculation:
Your monthly housing cost should not exceed 32% of your gross monthly family income.
- Total Debt Service Ratio (TDSR) calculation:
Your monthly housing cost and payments on all of your other debts (including loans, credit cards and lease payments) should not exceed 40% of your gross monthly income.
Be sure to be brutally honest when calculating your Total Debt Service Ratio by including every monthly payment you owe. Buying beyond your means will only spell heartache in the future. Only dream as big as your budget will allow!
Our handy mortgage calculator will help in this process but even better, why not get pre-approved using one of our on-site Mortgage Brokers.