First Time Buyers

Evaluate Yourself

Start by calculating your net worth, and determining your current monthly expenses including your monthly debt payments. This will set a foundation for you to create a clear picture moving forward. If you are not ready to do a hard assessment of your current financial state, then chances are you’re not ready for home ownership.

What can I afford?

Mortgage lenders follow two simple affordability rules to determine how much you can pay.

1. Affordability rule #1 - 32% of your gross household monthly income should be the most you pay for monthly housing costs (housing costs include monthly mortgage principal and interest, taxes and heating expenses — known as P.I.T.H. for short). For a condominium, P.I.T.H. also includes half of the monthly condominium fees. This figure is known as your Gross Debt Service (GDS) ratio. Remember, it must be 32% or less of your gross household monthly income.
2. Affordability rule #2 – your entire monthly debt load shouldn't be more than 40% of your gross monthly income. This includes housing costs and other debts, such as car loans and credit card payments. 

The percentage of these debts of your gross household monthly income is your Total Debt Service (TDS) ratio.

My Maximum Home Price

The maximum home price that you can afford depends on a number of factors but the most important are: 1) your gross household income, 2) your down payment, and 3) the mortgage interest rate.

For most people the hardest part of buying a home is saving the necessary down payment. Many people will not have 20% of the purchase price to put down. With mortgage loan insurance, you can purchase a home with as little as 5% down payment. Mortgage loan insurance protects the lender and, by law, most Canadian lending institutions require it. The way it works is if the borrower fails to pay the mortgage, the lender is paid back by the insurer. The cost for this type of insurance is in the form of a premium and can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments.

Upfront Costs

It’s imperative to plan ahead to cover the many up-front costs of buying a home. It’s an essential step to help things go smoothly. 

• Mortgage Loan Insurance Premium. Certain mortgages are classified high-ratio mortgages (this means less than 20% down payment). Many lenders may require mortgage loan insurance for high ratio mortgages.
• Appraisal Fee. An appraisal is an estimate of the value of the home. The cost to have your new home appraised is usually between $250 - $350. Some mortgage brokers may ask you to have your home appraised at your own expense.
• Deposit. This is part of your down payment and must be paid when you make an Offer to Purchase.
• Down Payment. At least 20% of the purchase price is usually required for a conventional mortgage. However if you have less than 20%, you can own your home with as little as 5% down payment as long as you have mortgage loan insurance.
• Estoppel Certificate Fee. This applies if you are buying a condominium or strata unit and could cost up to $100.
• Home Inspection Fee. MAC recommends if you are purchasing a resale property that you make a home inspection a condition of your Offer to Purchase. A home inspection generally costs up to $500 and is a report on the condition of the home.
• Property Transfer Tax (BC Residents only). If the fair market value is $200,000 or less, the tax is 1% of the fair market value. If the fair market value is greater than $200,000, the tax is 1% of the fair market value up to $200,000, plus 2% on the portion of the fair market value that is greater than $200,000 

For example: 
If fair market value of property is $150,000 tax payable is: 1% of $150,000 = $1,500 
If fair market value of property is $250,000 tax payable is: 1% of $200,000 = $2,000 plus 2% of $50,000 = $1,000 for total tax payable of $3,000

• Property Insurance. The mortgage lender will not grant you your mortgage unless you have property insurance. Your lender requires this because the home is security for the mortgage. This insurance covers the cost of replacing your home and its contents. Property insurance must be in place on closing day.
• Survey or Certificate of Location Cost. The mortgage lender may ask for an up-to-date survey or certificate of location prior to finalizing the mortgage loan. If the seller does not have one or does not agree to get one, you will have to pay for it yourself. It can cost in the $1,000 to $2,000 range.
• Water Tests. If the home has a well, you will want to have the quality of the water tested to ensure that the water supply is adequate and the water is potable. You can negotiate these costs with the vendor and list them in your Offer to Purchase.
• Septic tank. You will want to check the working order of the Septic Tank should your home have one. You can negotiate the cost with the vendor and list it in your Offer to Purchase.
• Legal Fees and Disbursements. These fees range from $500 - $1100 depending on the complexity of your closings. For example, are you only buying, only selling, or doing both?
• Title Insurance. Your lender or lawyer/notary may suggest title insurance to cover loss caused by defects of title to the property.

Other Costs

Besides up-front costs, there are other expenses to consider:

1. Condominium fees
2. Appliances
3. Gardening equipment
4. Snow-clearing equipment
5. Window treatments
6. Decorating materials
7. Hand tools
8. Dehumidifier
9. Moving expenses
10. Renovations or repairs
11. Service connection fees