Turn Your Dreams Into Reality

To determine how much home you can afford, you must calculate your taxable income, outstanding debts, and monthly payments. Lenders typically use two primary ratios—Gross Debt Service (GDS) and Total Debt Service (TDS)—to establish your maximum, taking the lower of the two as your limit.

1. Calculate Your Lender-Approved Limits (39/44 Rule)
• GDS Calculation (Max 39%): Calculate 39% of your gross monthly income. This amount must cover your mortgage payment, property taxes, heating costs, and 50% of any condo fees.
• TDS Calculation (Max 44%): Calculate 44% of your gross monthly income. This amount must cover all housing costs (from the GDS calculation) plus all other monthly debt payments (car loans, credit cards, lines of credit).
• The Limit: Lenders will use the lower of these two calculations to determine your maximum allowable monthly housing expenses.
2. Calculate Your Personal Comfort Level
• Avoid Being "House Poor": Just because lenders approve a certain amount does not mean you should spend it. If you feel comfortable with a payment lower than the 39% GDS limit, settle for that amount.
• Lifestyle Budgeting: Ensure you have enough left over for simple luxuries, savings, and emergencies so your entire budget isn't consumed by your home

Mortgage default insurance (often called CMHC insurance) is mandatory in Canada for high-ratio mortgages (down payment <20%, or Loan-to-Value >80%). It protects lenders if the borrower defaults.

Providers include CMHC (a crown corporation), Sagen (formerly GE Capital), and Canada Guaranty. Premiums range from roughly 0.60% to 4.00% of the loan, paid by the borrower, and can be added to the mortgage.

• Purpose: Required by law to insure lenders when down payment is less than 20%.
• Premiums: One-time cost based on loan size, usually added to the mortgage principal.
• Requirement: Mandatory for high-ratio mortgages; not available for home prices over $1,500,000.
• Limitation: It protects the lender, not the borrower, and is distinct from mortgage life insurance.
• Costs: Provincial Sales Tax (PST) may apply to the premium in certain provinces, which cannot be added to the mortgage loan

A conventional mortgage in Canada is a low-ratio loan with a down payment of 20% or more of the purchase price (or appraised value), resulting in a loan-to-value (LTV) ratio of 80% or less. Because the lender assumes less risk, mortgage default insurance is not required, which eliminates extra premiums, although a stress test is still mandatory.

Most lenders accept immediate family gifts (parents, siblings, grandparents) for down payments, requiring a signed gift letter confirming funds are not a loan. While CMHC often requires funds to be in the purchaser’s possession before approval, insurer policies can vary. Notably, many insurers now allow funds to be verified at closing rather than before application submission.

As of April 2026, the Home Buyers' Plan (HBP) has been updated to allow first-time homebuyers to withdraw up to $60,000 from their Registered Retirement Savings Plan (RRSP) tax-free to finance a down payment. The HBP is administered by the Canada Revenue Agency (CRA).

• Withdrawal Limit: Individuals can withdraw up to $60,000 ($35,000 previously).
• Couples/Joint: If purchasing with a spouse or partner, both individuals can each withdraw $60,000, allowing for a total of $120,000 from RRSPs for a down payment.
• Tax Impact: The withdrawal is tax-free, provided it is repaid within the required timeframe.
• Eligibility: Generally for first-time buyers (or those who have not owned a home in the past four years). Funds must be in the RRSP for at least 90 days.
• Repayment Timeline: You have up to 15 years to repay the withdrawn amount to your RRSP.
• Start Time: Repayments typically start in the second year following the year of withdrawal. For example, if you withdraw in 2026, you begin repayments in 2028.
• Minimum Payments: The CRA requires annual repayments. If you fail to repay the minimum amount, it is included in your taxable income for that year and you will pay income tax on it.

Costs associated with buying a home—often called closing costs or transaction fees—typically range from 1.5% to 4% of the purchase price, covering mandatory expenses beyond the down payment. Key upfront costs include land transfer taxes, legal fees ($900–$2,500+), home inspection ($400–$700), and mortgage default insurance if the down payment is under 20%.

Key Costs Associated with Buying a Home

• Down Payment: Typically 5%–20%+ of the purchase price.
• Land Transfer Tax (LTT): Often the largest cost (percentage of property value). Cost depends on where you live.
• Legal Fees and Disbursements: Lawyer fees for title transfer and closing.
• Mortgage Default Insurance (CMHC): Mandatory if the down payment is less than 20%.
• Home Inspection Fee: $400–$700 to evaluate the home’s condition.
• Title Insurance: Protects against losses from defects in the property title ($300–$800).
• Appraisal Fee: $300–$800 to estimate the home's value for the lender (cost is subject to location).
• Property Tax/Utility Adjustments: Reimbursement to the seller for pre-paid taxes or utilities.
• HST/GST: Typically applies to new (but can be reimbursed), but not resale, homes.
• Moving and Setup Costs: Costs to move and connect utilities

A longer-term mortgage (4, 5, or 7 years) is an excellent choice if you have a busy life and want to avoid watching fluctuating mortgage rates, offering stability as many borrowers face payment increases. Locking in now lets you secure a fixed rate, shielding you from potential rate increases anticipated later in 2026.

Alternatively, if you want to keep your mortgage flexible or believe rates might drop further, a shorter-term (2 or 3-year) mortgage allows you to renew sooner and potentially capitalize on lower rates, though this comes with higher, more frequent renewal risks.

Key Considerations...

• Longer-Term Stability: A longer term offers payment certainty
• Shorter-Term Flexibility: 3-year fixed rates are being considered for more flexibility, as they allow for a potential rate decline in the future.
• Penalty Risk: Lawyer fees for title transfer and closing.

Ultimately, selecting the right term depends on your comfort level with risk and your anticipation of whether rates will rise or fall.

Bankruptcy doesn't necessarily disqualify you; many lenders offer mortgage options tailored to your specific situation.