Before jumping in to the real estate market, Jason Heath suggests meeting with a mortgage broker or specialist to do a personal assessment of all your costs to evaluate your budget and learn how much you can borrow.

Talk to a mortgage broker and do a personal budget assessment before you start house hunting, expert says.

How big a mortgage can you afford? It’s one of the first questions faced by any new homebuyer.

Figuring out how much you can borrow without getting in over your head requires detailed planning and realistic goals, says Jason Heath, managing director of Objective Financial Partners.

Heath suggests potential buyers start by meeting with a mortgage broker to do a personal assessment of your costs. “Some people live very frugally while others spend more, those factors don’t get incorporated into how much the bank will lend you,” Heath points out.

The amount you can borrow safely depends primarily on the percentage of your pay that will go toward housing costs and debt payments for a mortgage of a given size. Two key ratios to consider are your Gross Debt Service (GDS) ratio and Total Debt Service (TDS) ratio.

GDS is the percentage of your gross monthly household income that covers your housing costs (including mortgage payments, utilities, taxes and condo fees). The Canada Mortgage and Housing Corporation restricts GDS to 39 per cent of your income.

TDS is the percentage of your gross monthly household income that covers your housing costs plus other debts (including car payments, credit card debt and other loans). CMHC restricts that ratio to 44 per cent of your income.

You can find a debt service calculator on the CMHC website where you can run some numbers.

To give you an idea of ​​how much you can borrow, we asked Leah Zlatkin, a mortgage broker at LowestRates.ca, to calculate a typical mortgage amount for a first time buyer making $100,000 a year.

If you got a five-year fixed mortgage rate of 3.25 per cent, you would have to be able to handle a mortgage at the “stress test” rate of 5.25 per cent, she says. That would qualify you for a mortgage of around $528,000. Every quarter percentage point increase on the stress test rate would equate to about $12,000 less in financing.

With a down payment of $30,000, that means you could afford a home that costs about $560,000.

The reality is even many high-earning professionals, including doctors and lawyers, can’t afford real estate in Toronto, Heath says. That’s why many are looking at homes further outside the city, considering smaller starter condos or saving a larger down payment.

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