For your dream to come true, you must first assess your finances. What’s happening in that department? Do you have debts? Savings? Is your credit rating untarnished? Time to draw up a balance sheet!

Calculate your net worth

To avoid unpleasant surprises, it is strongly recommended to make some calculations, such as your net worth, your monthly expenses and your debt load among others.

Your net worth is simply what is left after subtracting the sum of your liabilities from the sum of your assets. It is important to know your net worth because you will need this information to apply for a mortgage. Furthermore, it will help you determine the amount of your down payment. And, the summing up of your current expenditures and liabilities will help you decide on the size of the mortgage payment you are able to afford.

To determine the amount of your assets, make a list of all your liquidities, investments and possessions and give each element an objective value. Do the same thing to assess your liabilities.

Whether it’s a matter of decreasing your debt load or increasing your savings, taking this step is important because it allows you to clearly evaluate your current lifestyle and change it, if required. To turn round a negative balance sheet is quite feasible with a little organization. The best way to determine what your real expenditures are is to take note of all your purchases. Use a little notebook to record systematically amounts paid for what you buy: your morning coffee, your lunch at the restaurant, your nights out, shopping, etc. These expenses, together with monthly statements such as your telephone bill, will give you a better idea of your current expenses. Once assembled, this information will help you draw up a clear picture of your habits as a consumer.

Determine the maximum home price you can afford

The maximum home price you can afford depends on a number of factors among which the most important are your gross household income, your down payment and your mortgage interest rate. The table on this page gives you an idea on the maximum amount you should pay for your home.

Before approaching your financial institution for a mortgage loan, check your credit rating and calculate your borrowing capacity. A bad credit record will have a negative impact on your mortgage application analysis. It is therefore important to know what your record shows and if the case may be, to have any errors corrected.

Don’t be too generous in your calculations

As for the maximum amount to borrow, it is better not to be too generous in your calculations. Indeed, in addition to mortgage payments, property taxes and home insurance, owning a property involves other expenditures which must be taken into account, such as maintenance and repairs as well as the cost of other services. For a condominium it is likely that certain expenditures are included in the monthly condo fees. Be that as it may, all components in a building age with time and need to be maintained repaired or replaced. It’s a good idea to put some money aside for this by depositing 5% of your salary in a separate account.

The borrower’s monthly housing costs (principal and interest, taxes and heating expenses costs [P.I.T.H.]), the annual site lease, if applicable, as well as half of the condo fees should not exceed 32% of the gross household income revenue (Gross Debt Service ratio [GDS]). You can use the GSD report form provided on the CMHC website (www.cmhc-schl.gc.ca/en/co)

The borrower’s total debts should not exceed 40% of the gross household income (Total Debt Service ratio (TDS) which correspondsto the sum of the P.I.T.H., the annual site lease in the case of a leaseholdtenure, half of the condo fees and of payments relative to other debts, divided by the gross household annual income). You can add your expenditures and determine the total debt service ratio with the help of the TDS calculation formula provided on the CMHC website (www.cmhcschl. gc.ca/en/co).

In this regard, you should not forget to factor in the closing fees, which can be between 1.5% and 4% of the purchase price. They encompass notary fees, GST and PST (if applicable), real estate transfer tax, adjustments, etc.

Always pay your mortgage on time

Regardless of the frequency you elected for your mortgage payments (monthly, bimonthly or weekly), always make your payments on schedule because late payments can involve penalties and negatively impact on your credit rating. The best way to avoid being late in your payments is automatic withdrawals from your bank account and putting aside, in a separate account, the equivalent of three monthly payments to be able to deal with emergency situations.

Most important, budget according to your goals, calculate your true borrowing capacity, choose carefully the financial product that better meets your needs and pay back your mortgage as quickly as possible. This way, you can make your dream come true without stress and at a price that is best for you!

To calculate your monthly payments according to scenarios that meet your needs, browse the Consumer Tools section of the Financial Consumer Agency of Canada website
(www.fcac-acfc.gc.ca).

Source : CMHC and APCHQ Open