Financing
Understand what you can afford and how to structure your mortgage.
Financing
Before you start house-hunting, understanding financing puts you in the strongest possible position. Here are the key concepts every Canadian buyer should know.
Introduction
Getting your financing organized before you shop makes offers stronger and closings smoother. A qualified mortgage broker will look at your income, debts, and down payment to determine what you can comfortably afford.
First Affordability Rule — GDS (~32%)
Your Gross Debt Service ratio is the percentage of your gross monthly income used for housing costs — mortgage principal & interest, property taxes, heating, and 50% of condo fees. Most lenders cap GDS at around 32%.
Second Affordability Rule — TDS (40%)
Your Total Debt Service ratio includes GDS plus all other monthly debt payments (car loans, credit cards, student loans). Lenders typically cap TDS at 40%.
Pre-Approval
A mortgage pre-approval locks in an interest rate for 90–120 days and confirms the maximum you can borrow. It signals to sellers that you're a serious, qualified buyer.
Conventional Mortgages
A conventional mortgage requires a down payment of 20% or more of the purchase price and does not require default insurance.
High Ratio Mortgages
If your down payment is less than 20%, your mortgage is "high ratio" and must be insured (CMHC, Sagen, or Canada Guaranty). The insurance premium is added to your mortgage balance.
Using Your RRSP to Purchase a Home
The Home Buyers' Plan (HBP) lets first-time buyers withdraw up to $60,000 from their RRSP tax-free toward a down payment. The amount must be repaid over 15 years.