Start figuring out your financial readiness by evaluating your present budget. How much are you
spending each month? From car payments, gas, food. Even the smallest purchase and impact your
overall budget. A cup of coffee that costs you $1.50 a day easily turns into $10.50 a week, than $30.00+
a month and yearly over $500.00!! Knowing exactly how much, will give you a better idea about
whether you can afford to become a homeowner.



Before you begin shopping for a home, it’s important to know how much you can afford to spend on a
home. You will want to plan ahead for the various expenses related to homeownership. In addition to
purchasing the home, other significant expenses will include gas, property taxes, home maintenance
and renovations as required. Two simple rules can help you figure out how much you can realistically
pay for a home. You must understand these rules to understand if you will be able to get a mortgage.

The first rule is that your monthly housing costs shouldn't be more than 32% of your gross monthly
income. Housing costs include your monthly mortgage payments (principal and interest), property taxes
and heating expenses. This is known as PITH for short — Principal, Interest, Taxes and Heating.

Lenders will add up your housing costs and figure out what percentage they are of your gross monthly
income. This figure is called your Gross Debt Service (GDS) ratio. To be considered for a mortgage, your
GDS should be 32% or less of your gross household monthly income.



Mortgage Loan Insurance



Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers
to purchase homes with a minimum down payment of 5% — with interest rates comparable to
those with a 20% down payment.



The CMHC Mortgage Loan Insurance premium is calculated as a percentage of the loan and
is based on a number of factors such as the intended puropose of the property (owner occupied
or rental), the type of loan (i.e. purchase/construction or refinance loan), the ability of a self-
employed borrower to supply income verification, and the size of your down payment. The
higher the percentage of the total house price/value that you borrow, the higher percentage you
will pay in insurance premiums. The cost for mortgage loan insurance premiums is usually offset
by the savings you get from lower interest rates.





Mortgage Loan Insurance



Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers
to purchase homes with a minimum down payment of 5% — with interest rates comparable to
those with a 20% down payment.



The CMHC Mortgage Loan Insurance premium is calculated as a percentage of the loan and
is based on a number of factors such as the intended puropose of the property (owner occupied
or rental), the type of loan (i.e. purchase/construction or refinance loan), the ability of a self-

employed borrower to supply income verification, and the size of your down payment. The
higher the percentage of the total house price/value that you borrow, the higher percentage you
will pay in insurance premiums. The cost for mortgage loan insurance premiums is usually offset
by the savings you get from lower interest rates.



Before approving a mortgage, lenders will want to see how well you have paid your debts and
bills in the past. To do this, they consider your credit history (credit report) from a credit bureau.
This tells them about your financial past and how you have used credit.

Before looking for a mortgage lender, get a copy of your own credit history. There are two main
credit-reporting agencies: Equifax Canada Inc. and TransUnion of Canada. You can contact
either one of them to get a copy of your credit report. There is often a fee for this service.

Once you receive your credit report, examine it to make sure the information is complete and
accurate.



Pre Approval



The financing of your home purchase is the one of the single most important items to get sorted
out prior to the start of your home search, especially if you are a First Time Home Buyer. Banks
and mortgage brokers will pre-approve most Buyer’s for an amount determined by the Buyer’s
current income and expenses to determine what they can afford in monthly mortgage payments.

There are a number of benefits to being pre-approved when conducting your home search;

First, it establishes a price range that you and your Buyer Agent should be focusing on. This will
allow you to narrow your home search in a more realistic way as you are going to be searching
for a home you can afford; Second, when submitting an offer, being pre-approved will allow you to remove the financing

clause/condition if your initial offer gets signed back. There have been cases where the Buyer
submits a letter from the lending institution in the Schedule B of the initial offer, which
illustrates to the Seller that the Buyer has been pre-approved to support their offer price on the
property. This will solidify the offer in most cases, along with a certified cheque of the illustrated
deposit amount with the offer.

​

If you need to get pre-approved or discuss your finances with any lending institution, let your
Buyer Agent know as most of them are connected to many different banks and mortgage brokers.
They will be happy to discuss this with you prior to your home search. One other important
point to think about is how applying for a mortgage can affect your overall credit score, if you
are declined financing from that lender..This is a good question to ask your lender.



Although it is useful for your Buyer Agent to know that you have been pre-approved and for
what amount, this step is outside of what they offer to your as your Buyer Agent. They are here
to provide guidance to you to make your home purchase a smooth one.