How to match the home you buy to your pocketbook

So, you've decided to take the big leap and purchase your first home. Most of us have a dream home tucked away at the back of our minds — complete with six bedrooms, two fireplaces and a panoramic view. Before setting off to view properties you likely cant afford, step back and take a reality check.

Your dream home can easily become a nightmare when most of your money goes to pay the mortgage and there's little left over for anything else. Overextending yourself financially is the quickest way to destroy the excitement of home ownership and add stress to your life.

Smart home-buying means knowing what you can afford and being practical about it. Most first-time buyers, in particular, lack the funds needed to buy a home without assistance from a bank or financial institution. Buying a home means combining savings with money borrowed through a special arrangement called a mortgage.

To keep mortgage payments within their means, most first-time buyers purchase what is commonly known as a starter home. A starter home is just that — a way of getting started in long-term real estate investment.

To match the home you buy to your pocketbook you have to realistically assess your needs, determine what you can afford and, usually, lower your expectations. Begin by enlisting the services of a real estate representative. This individual will help you target your home ownership dreams and provide valuable information on mortgage options, interest rates and incentives, such as government programs, for first-time buyers.

In the meantime, here are some ways to determine how much you can afford.

Set a maximum price range
To determine your affordability price range, you must calculate two amounts; the amount of cash you can afford to put towards the purchase (down payment) and the maximum amount of loan (mortgage) you can comfortably carry. Typically, household expenses should not exceed 35 per cent of your gross income.

Put down as much as you can
The key to getting started for most first-time buyers is the initial down payment. This is the part of the purchase price you have to put down as cash. You may be able to buy a home for as little as five per cent down. But remember that the larger the down payment, the easier it will be to manage the other expenses (mortgage, utilities and property taxes).

An ideal down payment is 25 per cent of the purchase price. Keep some cash in reserve though for unexpected expenses related to a home purchase and typical expenses such as land transfer tax, legal fees and moving expenses.

Know how much to borrow
To establish your maximum mortgage limit, a financial institution will determine the monthly payment you can afford by calculating your debt-service ratio. List all your loans (car, personal loans, monthly credit card balances). The sum of these and your mortgage payment, including principal, interest and taxes, should not exceed about 40 per cent of your gross income. The mortgage payment and taxes should not exceed about 30 per cent of your gross income.

Understand interest rates
The size of the mortgage you can arrange, based on payments you can afford, depends on interest rates. The lower the rates, the larger the possible mortgage and the more affordable home-buying will be.

However, there are other variables to consider: How open is the mortgage? Is it portable? Would prepayment be allowed? Discuss your mortgage options with your REALTOR, banker or financial advisor. Decide whats best for you, establish a limit and stick to it.

Look at other sources of funds
If you have been contributing regularly to a Registered Retirement Savings Plan (RRSP), you may have to look no further for your down payment. The federal governments RRSP Home Buyers Plan allows eligible taxpayers to withdraw up to $20,000 per person ($40,000 per couple) tax free from their plan to buy a qualifying home. However, you have to pay back every year at least 1/15th of the amount taken out until it is all paid back, or there will be a tax penalty.

The Ontario Home Ownership Savings Plan (OHOSP) is a provincial program which provides tax credits on annual contributions to an Ontario resident earning less than $40,000 a year (or less than $80,000 per couple) who has never owned a home. While there is no limit to the amount you may deposit in an OHOSP, you can only receive tax credits on annual contributions of $2,000 ($4,000 per couple) or less. Depending on your annual income and the money you invest, you can earn up to $500 individually or $1,000 a couple in tax credits a year. The plan must be closed and a home purchased by the end of the seventh year.

The Canada Mortgage and Housing Corporations (CHMC) five per cent down mortgage program is available to both first-time buyers and those who have already owned a home. This benefits buyers who can afford the monthly payments, but would have trouble saving for a larger down payment. Under the program, CMHC may insure the mortgage on your home (against default in payments) for up to 95 per cent of the lending value. An insurance premium of about 3.75 per cent of the mortgage loan is charged. This amount can be added to the mortgage or paid on a monthly basis.

Other sources of funds you can tap into for a down payment include savings and investments and loans or gifts from your family or relatives. If you're already a homeowner and moving up, you can use money that you get from the sale of your present home.

Information courtesy of the Ontario Real Estate Association.



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Danielle Lapointe
  May 11, 2022

I just bought my first home with Kimberly’s help! I can’t thank Kimberly and the VanDinther team enough. Kimberly was such a great help during an incredibly challenging seller’s market. As an out-of-town buyer, I really relied upon Kimberly’s knowledge and expertise, and I was so grateful that she was able and willing to do virtual tours with me. She has a fantastic understanding of Burlington and Oakville’s condo market, I felt really confident in the advice that she gave me. Working with a realtor who works within a team also proved to be a great benefit- when I expanded my search to Milton, Morgan was able to lead a virtual tour in a short turn around and I ended up finding my perfect first home. This team is great. I can’t recommend Kimberly enough and there is no doubt in my mind that I will work with her again when I am ready to look for my next home. Thank you!

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Lauren Wing
  April 30, 2022

We can't thank the VanDinther team enough for helping us persevere through a tough market and find a beautiful home. Morgan and Lori were were always available to organize showings, to provide market insights, and to give us the tools and support we needed to land a property we love. We so appreciate all of the work they did behind the scenes to provide us with an easy-to-navigate plan forward, often at short notice. We highly recommend Team VanDinther!

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Brad Rooke
  April 21, 2022

Good people are hard to find. Good honest people are even harder to find. Lori and her team proved to be both and earned the right to be called trusted advisors. Lori's real estate experience was drawn upon to read market conditions, map competitive landscape, formulate a pricing strategies, and deliver a unique marketing plan that allowed us to sell our home on time while achieving our target. price. Not easily achieved as some foreseen and unforeseen challenges materialized. Without a seasoned professional such as Lori by our side to navigate us through the process we would not have realized such a positive outcome. We enjoyed a positive professional experience and have many accolades for Lori and her team.

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Bette Dodds
  April 07, 2022

Many thanks to Lori and Morgan for taking me through the steps of selling my house, it had been over 30 years and the real estate market has changed tremendously! I was definitely in good hands, they are very professional and I was happy with the results!

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