How Much Home Can You Afford?

The size of your down payment has a direct impact on the size of mortgage loan you'll need, and may affect your monthly mortgage payment amount:

• You may be able to get a mortgage with only 5% down payment (price restrictions apply)
• Typically, a larger down payment can lower your mortgage loan amount, for lower mortgage payments
• With less than 20% down (high-ratio mortgage), you'll need to pay for default insurance, which is typically added to your payments
• With 20% down or more (conventional mortgage), you won't need default insurance, which may lower your payments
• A conventional mortgage, however, may also incur a higher mortgage rate from lenders, which may impact your mortgage payment (make sure to get your best rate, through us!)

Related: Why a bigger down payment could result in a higher rate

Lenders look at two ratios when determining how much mortgage you qualify for:

• Gross Debt Service ratio (GDS) — total monthly housing costs shouldn't be more than 39% of your gross household income
• Total Debt Service ratio (TDS) — total debt load shouldn't be more than 44% of your gross household income

In addition, the federal stress test may impact the mortgage amount for which you'll be able to qualify. Regardless of what your actual mortgage rate will be, you'll need to prove that you can still afford your mortgage payments at a higher 'qualifying' interest rate (in case interest rates go up in the future).

If you find that your numbers don't match what you're hoping for, there are some ways you may be able to increase the size of mortgage you can afford:

• Make a bigger down payment — wait longer to save more, look at first-time home buyer programs, forego a holiday, or make use of any family monetary gifts
• Increase your income — consider a side-hustle, rent out a spare room, negotiate a higher salary, upgrade for a better position, or find a job that pays better
• Pay off your existing debts
• Improve your credit score
• Look into a longer amortization to lower your payments (depending on the lender)

When looking for a home or property, real estate agents and home sellers want to know that you're serious about purchasing. A pre-approval (vs a pre-qualification) is a written commitment from a lender (with conditions) that helps ensure you can afford the house or property that interests you. So, it prevents everyone, including you, from wasting time looking at or offering on homes that you may not be able to afford.

A pre-approval also allows you to hold your best mortgage rate for up to 120 days (depending on the lender).

Your pre-approval can take anywhere from a few minutes, up to two weeks for particular situations (such as for self-employed applicants). Our expert brokers can quickly help you have a pre-approval in hand when house-hunting.

Read more: Get Pre-Approved in Minutes

A mortgage pre-qualification is a quick idea of what you may be approved at for a mortgage loan, based on a few financial numbers provided verbally without any supporting documents.

A pre-qualification may be useful when you first start thinking about owning a home, for budget purposes and to get to know the mortgage process.

However, if you're serious about looking for a home, we recommend a pre-approval, which is a conditional lender commitment for the size of mortgage you'll actually be able to get.

Read more: Get Pre-Approved in Minutes