Buying a home: Are you financially ready?
If youʼre like most Canadians, your home is probably the most important investment you will ever make. But how do you know if you are financially ready for all the responsibilities that come with homeownership? To help you avoid any unpleasant surprises, Canada Mortgage and Housing Corporation (CMHC) offers the following tips on how to assess your current financial situation, calculate your monthly expenses and determine how much home you can afford: First, calculate your net worth. Your net worth is the total of all of your assets (including any investments, savings, properties, vehicles and other assets you own) minus your liabilities (such as any mortgages, car loans, personal or student loans, credit cards or other debts). Your net worth will give you an accurate snapshot of your current financial situation, as well as an idea of how large a down payment you can afford. Next, calculate your current monthly expenses to determine what kind of mortgage payment could comfortably fit into your budget. Once you have a clear picture of your financial situation, figure out how much you can afford in monthly housing costs. As a general rule, your total monthly housing costs (including mortgage principal and interest, taxes and heating) shouldnʼt exceed 32 per cent of your gross household monthly income. In addition, your entire monthly debt load (including mortgage payments, car or student loans, and credit cards) shouldnʼt be more than 40 per cent of your gross household monthly income.If you have made all the necessary calculations and feel you are ready, it can be a good idea to select a lender and ask them to pre-approve you for a mortgage. Getting preapproved lets you know in advance what price range you should have in mindwhen you are shopping for your new home.