Quick Affordability Estimate
Rule of Thumb
| Method |
Max Purchase Price |
| 4-5× income |
Quick estimate |
| $100K income |
~$400K-$500K home |
| $80K income |
~$320K-$400K home |
But: Actual affordability depends on down payment, debts, and rates.
The Official Rules
Debt Service Ratios
| Ratio |
Formula |
Maximum |
| GDS |
Housing costs ÷ Income |
39% |
| TDS |
All debts ÷ Income |
44% |
GDS (Gross Debt Service)
| Includes |
|
| Mortgage payment |
Principal + interest |
| Property tax |
Annual ÷ 12 |
| Heating |
Estimated |
| Condo fees |
50% if applicable |
TDS (Total Debt Service)
| GDS Plus |
|
| Car payments |
Monthly |
| Credit card minimum |
Usually 3% of balance |
| Student loans |
Monthly payment |
| Other loans |
All debt payments |
The Stress Test
What It Is
| Requirement |
|
| Qualify at |
Higher of: |
|
Benchmark rate (~5.25%) |
|
Your rate + 2% |
Example
| Your Rate |
Stress Test Rate |
| 5.0% |
7.0% (rate + 2%) |
| 4.5% |
6.5% (rate + 2%) |
| 3.0% |
5.25% (benchmark) |
You must qualify at the stress test rate, even though you’ll pay your actual rate.
Calculating Affordability
Step 1: Maximum Monthly Housing Cost
| Calculation |
|
| Gross monthly income |
$ |
| × 39% (GDS limit) |
= Max housing cost |
Example
| Income |
$8,000/month ($96K/year) |
| × 39% |
= $3,120 max housing costs |
Step 2: Subtract Non-Mortgage Costs
| Item |
Monthly |
| Property tax |
~$300-500 |
| Heating |
~$100-200 |
| Condo fees (50%) |
If applicable |
| Remaining for mortgage |
$ |
Example Continued
| Max housing |
$3,120 |
| Property tax |
-$400 |
| Heating |
-$150 |
| Available for mortgage |
$2,570 |
Step 3: Calculate Maximum Mortgage
| At stress test rate (~7%) |
|
| $2,570/month payment |
|
| 25-year amortization |
|
| Maximum mortgage |
~$400,000 |
Step 4: Add Down Payment
| Mortgage |
$400,000 |
| + Down payment (20%) |
$100,000 |
| Maximum purchase price |
$500,000 |
Down Payment Requirements
Minimum Down Payments
| Purchase Price |
Down Payment Required |
| Up to $500K |
5% |
| $500K - $999K |
5% on first $500K, 10% on remainder |
| $1M+ |
20% |
Example: $700K Home
| Portion |
Rate |
Amount |
| First $500K |
5% |
$25,000 |
| Remaining $200K |
10% |
$20,000 |
| Total |
|
$45,000 |
CMHC Insurance
| Down Payment |
CMHC Premium |
| 5% |
4.00% of mortgage |
| 10% |
3.10% |
| 15% |
2.80% |
| 20%+ |
Not required |
Impact of Other Debts (TDS)
How Debts Reduce Affordability
| Monthly Income |
$8,000 |
| TDS limit (44%) |
$3,520 |
| Car payment |
-$400 |
| Credit card min |
-$100 |
| Student loan |
-$300 |
| Available for housing |
$2,720 |
Lower than GDS limit, so TDS is binding constraint.
Each $100 in Debt Payments
| Reduces |
|
| Monthly available |
$100 |
| Mortgage affordability |
~$15,000-20,000 |
Affordability Scenarios
Scenario 1: No Other Debts
| Income |
$100,000/year |
| Down payment |
$100,000 (20%) |
| Other debts |
$0 |
| Max purchase |
~$550,000-600,000 |
Scenario 2: Car and Student Loan
| Income |
$100,000/year |
| Down payment |
$75,000 (15%) |
| Car payment |
$400/month |
| Student loan |
$300/month |
| Max purchase |
~$400,000-450,000 |
Scenario 3: Dual Income, No Kids
| Combined income |
$150,000/year |
| Down payment |
$150,000 (20%) |
| Other debts |
$500/month |
| Max purchase |
~$700,000-800,000 |
What Can You Comfortably Afford?
Conservative Guidelines
| Approach |
Maximum |
| CRA approved |
39% GDS / 44% TDS |
| Conservative |
28% GDS / 36% TDS |
| Very conservative |
25% GDS / 32% TDS |
Monthly Reality Check
| Item |
Budget % |
| Housing (all costs) |
30% max |
| Savings |
15-20% |
| Everything else |
50-55% |
Lifestyle Consideration
| Bank approves |
≠ Comfortable |
| Max affordability |
May leave little room |
| Consider |
Furniture, maintenance, lifestyle |
Total Costs of Homeownership
Beyond the Mortgage
| Cost |
Estimate |
| Property tax |
0.5-1% of home value/year |
| Insurance |
$1,000-2,000/year |
| Maintenance |
1% of home value/year |
| Utilities |
$200-400/month |
| Condo fees |
$300-800/month |
Example: $500K Home
| Monthly Cost |
Estimate |
| Mortgage ($400K at 5%) |
~$2,330 |
| Property tax |
~$400 |
| Insurance |
~$100 |
| Maintenance |
~$400 |
| Utilities |
~$250 |
| Total |
~$3,480/month |
Steps to Maximize Affordability
Before House Hunting
| Action |
Impact |
| Pay off credit cards |
Reduces TDS |
| Pay down car loan |
Frees up monthly |
| Increase income |
Higher limits |
| Save larger down payment |
Lower mortgage needed |
| Improve credit score |
Better rates |
Buying Strategies
| Strategy |
Effect |
| Buy further from city |
Lower prices |
| Buy smaller/older |
Lower purchase price |
| Condo vs house |
Often cheaper |
| Wait and save more |
Larger down payment |
Pre-Approval
Why Get Pre-Approved
| Benefit |
|
| Know your budget |
Before shopping |
| rate hold |
Lock in rate |
| Serious buyer |
To sellers |
| Faster closing |
Already vetted |
Pre-Approval Process
| Step |
What Happens |
| Application |
Income, debts, down payment |
| Documents |
Pay stubs, tax returns, ID |
| Credit check |
Score and history |
| Approval |
Maximum mortgage amount |
| Valid |
Usually 90-120 days |