The shortest and best answer is: it depends. The most important factor are your gross household income, your down payment, and the mortgage interest rate. Lenders also consider your assets and liabilities. Your own lifestyle and debt comfort zone will also factor into your decision.
If you understand these variables, you can examine all your options and make the best possible choice for you and your family. The table below give you an idea of the maximum home price you can reasonably afford. These estimates take into account household income and the percentage down payment you have. They assume a 10% mortgage interest rate, average tax and heating costs in Canada, and the mortgage an average Canadian would qualify for based on 32% debt service ratio.
| Household Income | 10% Down Payment | Maximum Home Price | 25% Down Payment | Maximum Home Price |
| $25,000 | $5,400 | $53,800 | $16,500 | $66,200 |
| $30,000 | $7,000 | $70,000 | $21,500 | $86,000 |
| $35,000 | $8,600 | $86,100 | $26,500 | $105,900 |
| $40,000 | $10,200 | $102,300 | $31,400 | $125,800 |
| $45,000 | $11,800 | $118,400 | $36,400 | $145,700 |
| $50,000 | $13,500 | $134,600 | $41,400 | $165,500 |
| $60,000 | $16,700 | $166,900 | $51,300 | $205,300 |
| $70,000 | $20,000 | $199,200 | $61,300 | $245,000 |
| $80,000 | $23,200 | $231,500 | $71,200 | $284,800 |
| $90,000 | $26,400 | $263,800 | $81,100 | $324,500 |
| $100,000 | $29,600 | $296,200 | $91,100 | $364,300 |
In general, lenders follow these two simple rules when deciding how much you can afford in monthly housing costs.
The first affordability rule is that your monthly housing costs shouldn’t be more than 32% of your gross monthly income. Housing costs include your monthly mortgage principle and interest, taxes, and basic utilities like water, heat and power. If applicable, this will also include half of the monthly condominium fees. Lenders add up these housing costs to determine what percentage they are of your gross monthly income: this figure is your Gross Debt Service Ratio.
The second affordability rule is that your entire monthly debt load shouldn’t be more than 40% of your gross monthly income. This includes housing costs and other debts such as car loans and credit card payments. Lenders add up these debts to determine what percentage they are of your gross monthly income. This figure is your Total Debt Service Ratio.
Based on these two ratios, lenders will advise you of the maximum home price they think you can afford. Keep in mind that most home buyers today keep their debt ratios comfortably below the maximums prescribed above. The lower your debt load, the more affordable your home and lifestyle will be.
If you need to work under a tight budget when purchasing Kitchener Homes or Waterloo Homes, it’s a good idea to get a professional Kitchener-Waterloo real estate agent on your side to help.
