Thinking of buying a house in Toronto or the
GTA? Before you go shopping for that dream home, you'll want to know exactly how much you
can afford. But how do you calculate that, especially with all the complicated mortgage
rules? In this video I'm going to show you three simple and easy steps to find the maximum
purchase price for your specific needs. Victor here, and welcome to a series of videos
that help Canadians get approved for a mortgage. If you're new here and want to receive easy to
understand mortgage tips, consider subscribing! So how much house can I afford to buy? Usually
when I'm asked that question what I'm really being asked is, how much can I borrow for a
mortgage? Did you know that Canadian banks follow a series of rules and formulas to determine
your mortgage affordability? But they're not always easy to follow.
You could search on
google for "mortgage affordability calculator". Here is the problem. Most online calculators give
different results. In fact I did an experiment. Using the exact same scenario with
calculators from all big six banks, plus from four other random sites, these were the
results. Not only were all the results different, but the maximum purchase price also ranged
from $295,000 all the way to $587,000! So why the big difference and which one can I
trust? Before you make an offer on a home, you're going to need accurate results. There's no
room for guessing! As the phrase goes, "knowledge is power". But using incorrect information
can lead to frustration and disappointment. So here's step number one. Time to do a bit
of homework. No excuses! It should only take a few minutes. You'll need to collect the
following information about your finances. First determine your total gross annual household
income. That is, your total income before taxes. Next add up all your monthly payments to service
debt. So this would include car payments, credit card and lines of credit, student loans, child
or spousal support, and any other debt payments. Finally, determine what you can comfortably make
as a down payment.
I must emphasize that you want to be as accurate as possible to get accurate
results. Step two. Now that you've collected information about your finances, it's time to
use a reliable up-to-date online calculator. But which one? As I showed before, different
calculators yield a huge range of results. Why the big range? Well, it's entirely
possible that at some point in time some of these calculators were giving correct results.
But mortgage rules are always changing. This is why I designed my own calculator, ensuring to
use the latest mortgage rules as of January 2021. You'll get a very good idea of your maximum
home affordability, regardless of your income debt and size of down payment. To get to
the calculator go to alternativemortgage.ca and click on "calculators" or follow the link in
the description below. Are you there yet? Great, then here's a quick tutorial. The calculator
is pre-populated with default numbers. Simply replace them with the numbers you
collected in step one. First enter your down payment. For the interest rate, leave it
as it is or change it to your desired rate. In the next section, enter your total gross
annual household income.
Leave the property tax, heating costs, and condo fee as is, unless
you know the specific costs for your property. Next, enter all your monthly debt payments for
credit cards, lines of credit, car payments and any other monthly debt obligations. Scroll down
and you'll see your results instantly! You'll see the maximum purchase price and mortgage amount you
can afford. In addition to that, you'll also be given your actual mortgage payment based on your
interest rate given at the top of the calculator, your down payment as a percentage of the purchase
price, and if it's less than 20 the CMHC premium for default insurance. Finally, note the rate
determined by the stress test.
To learn more about that I've created a video to explain how it
works. The link is in the description below. Now keep in mind this is the maximum purchase price
as determined by Canadian bank mortgage rules. It certainly does not mean that you should go and buy
a home at this price. You need to consider your own financial obligations, lifestyle and spending
habits, and what realistically works for you. Okay, so if you're happy with the results it's
time for step three. Getting pre-approved for a mortgage. Why is this step so important? Because
it will confirm how much mortgage you can afford and give you the exact rate you qualify for.
Besides, applying for a mortgage pre-approval is free and doesn't commit you to any specific
lender. But it does hold the mortgage rate you are offered for 30-120 days. This means you're
protected if interest rates rise while you're shopping for a home. Have any questions? Then
please drop a comment below. Navigating all these mortgage rules can be complicated, but I'm
here to help! Book your free discovery call and we'll figure it out together.
Contact details are
in the description below. Thank you for watching and don't forget to subscribe. Have a
great day and I'll see you next time!.