Don’t borrow all the money banks will lend you: CMHC

Canada Mortgage and Housing Corp. has a new how-to guidebook on buying a home and one of the more intriguing bits of advice is not to take on as large a loan as you might qualify for from your financial institution.

CMHC, which provides policy advice for the federal government on housing, takes it one step further in its House Buying Step by Step guide, saying you don’t need to take out a loan for the entire amount.

“Qualifying is one part of the equation but that doesn’t mean I can really afford it,” says Ina Wielinga, knowledge transfer consultant with CMHC. “When you go to a bank and qualify for that mortgage, they’ll do (the debt qualification) calculations but you have to go back home and look at your personal circumstances and see if this fits in your budget.”

That advice comes against the backdrop of soaring prices that saw the aggregate cost of a home in Canada reach $551,400 in January, up 15.03 per cent from a year ago, according to the Canadian Real Estate Association. Greater Vancouver and the Greater Toronto Area, where prices were up 22.6 per cent in January from a year ago, continue to drive the national numbers.

The revision of the guide, first published in 1998, has been in the works for about 18 months and isn’t specifically aimed at soaring house prices today.

The guide, available online, is designed to provide principles to determine how much Canadians can spend without putting their financial health at risk. It goes into upfront and ongoing costs of home ownership, preparing to meet lenders, definitions of key words, the basics on a mortgage and tips on maintaining and protecting your investment.