How much House can you Afford in Canada? (Based on Income)
Summary
TLDRThis video script by a licensed realtor offers a comprehensive guide on determining home affordability based on income, debt, and credit. It outlines how banks assess these factors, emphasizing the importance of a good credit score and stable income. The script provides tiered income examples to illustrate the maximum mortgage amounts one can qualify for, considering different interest rates. It also touches on additional costs like property taxes and CHMC, advising viewers to consult with professionals for personalized advice.
Takeaways
- 🏡 Home affordability is determined by three main factors: income, debt, and credit.
- 💼 Income includes all forms of consistent money inflow, such as salary, child benefits, pensions, and rental income.
- 🏦 Banks assess income differently based on the individual's situation, such as requiring two years of consistent income for business owners.
- 💳 Debt refers to any money owed, including credit card debt and private loans, which can negatively impact mortgage qualification.
- 🚫 Banks view most debts as unfavorable, especially when they do not generate any return, like car payments or electronics on installment plans.
- 🔍 A good credit score is crucial as it reflects an individual's financial responsibility and management.
- 📊 The script uses four income tiers (40K, 60K, 80K, and 120K) to illustrate potential home affordability in Canada.
- 📈 The Canadian average income is close to the 40K bracket, with Alberta having one of the highest averages at 77K annually.
- 📉 The script provides calculations for maximum loan amounts and monthly mortgage payments at different income levels and interest rates.
- 🏘️ With a 40K income, one might qualify for a home around 180K, while with 120K, the range extends to 550K, considering a 5% down payment.
- 📚 The importance of not waiting to buy a first property is emphasized, as it allows for equity building and potential appreciation.
- 💰 For a million-dollar property, an annual income of $160,000 to $200,000 is suggested, with a 20% down payment required.
Q & A
What are the three main factors that determine how much house one can afford?
-The three main factors are income, debt, and credit. Income includes any constant money coming into your account such as salary, child benefits, pension plans, and rental income. Debt refers to any money owed, including credit card debt or private debts. Credit is about how well you handle your money, which is reflected in your credit score.
How does the bank consider income for someone running a business?
-For someone running a business, banks might require 2 years of constant income to see security and stability.
What is considered as 'debt' in the context of getting a mortgage?
-In the context of getting a mortgage, 'debt' includes any money you owe to the government, credit card debt, private debts, car payments, monthly installments for phones or electronics, and other items on a monthly pay plan.
Why is it important to have a good credit score when applying for a mortgage?
-A good credit score is important because banks want to see how well you handle your money. It indicates your ability to manage financial responsibilities and pay back loans, which is crucial for mortgage approval.
What is the average income in Alberta and how does it relate to the income tiers discussed in the script?
-The average income in Alberta is one of the highest in Canada, at 77,000 annually, which is close to the 80K income tier discussed in the script.
What is the maximum loan amount one can qualify for with an annual income of $40,000?
-With an annual income of $40,000, one can qualify for a maximum loan amount of $198,552 at a stress test rate of 5.25% and a qualification rate of 5.25%, assuming no debt and good credit.
How does the script suggest approaching the idea of buying a 'dream home'?
-The script suggests buying a first property with the intent of taking the first action and getting into homeownership, rather than waiting to buy a dream home. Once you have built enough equity and appreciation, you can refinance and potentially move into your dream home.
What is the approximate monthly mortgage payment for a $180,000 property with a $9,000 down payment and a 5.25% interest rate?
-The approximate monthly mortgage payment for a $180,000 property with a $9,000 down payment and a 5.25% interest rate would be around $1,060.
What is the significance of the 5% down payment in the context of the script?
-The 5% down payment is significant because it is the minimum amount required for a mortgage on properties below the $500,000 mark. For properties above this mark, the down payment increases to 10% on the amount over $500,000.
What is the approximate income needed to afford a million-dollar property according to the script?
-To afford a million-dollar property, one would need an income of about $160,000 to $200,000 annually, along with a 20% down payment.
What are some additional costs associated with buying a property that are not included in the script's calculations?
-Additional costs that are not included in the script's calculations are property taxes, heating expenses, maintenance fees, insurance, utilities, and closing costs such as lawyer fees and property inspection fees.
Outlines
🏠 Home Affordability Factors
This paragraph discusses the factors that determine how much house one can afford, focusing on three main categories: income, debt, and credit. Income includes all consistent financial inflows like salary, child benefits, pensions, and rental income. The bank's assessment of this income can vary based on personal circumstances, such as running a business or being an employee. Debt refers to any money owed, including credit card debt and private loans, which are generally viewed negatively by banks when applying for a mortgage. Lastly, credit score is crucial as it reflects an individual's financial responsibility. The paragraph also touches on the importance of understanding these factors before applying for a mortgage and mentions government programs and savings accounts available to Canadians to help with home purchases. The script uses different income tiers to illustrate the potential home affordability, and it concludes with an experiment to estimate the income needed to afford a million-dollar property in Canada.
📊 Calculating Mortgage Affordability
This section provides a detailed breakdown of how different annual incomes can influence mortgage eligibility, using specific examples of $40K, $60K, $80K, and $120K. It explains the maximum loan amounts one can qualify for under these income brackets, considering a stress test at 5.25% interest rate and a qualification rate of 5.25%. The paragraph also discusses the implications of property taxes, heating costs, and other expenses on the mortgage amount. It highlights the types of properties one can afford at each income level, from one to two-bedroom condos to semi-detached homes, and the corresponding monthly mortgage payments. The script also compares the mortgage scenarios at 5.25% and 4.25% interest rates, emphasizing the potential for lower payments if rates decrease. Closing costs and regional differences in real estate transactions are briefly mentioned, and the paragraph concludes with advice on not waiting to buy a property due to the potential for equity and appreciation.
🚀 First-Time Home Buying Strategy
The final paragraph emphasizes the importance of taking the first step into homeownership rather than waiting to buy a dream home. It suggests that first-time buyers should aim to purchase a property within their means and then work towards building equity and refinancing to eventually move into their ideal home. The script advises against waiting to buy due to the financial and opportunity costs of renting. It also provides an example of the income needed to afford a million-dollar property, which ranges from $160,000 to $200,000 annually, including a 20% down payment and the associated mortgage and closing costs. The video concludes with a reminder that the information provided is not legal advice and encourages viewers to consult with a mortgage broker and realtor for personalized guidance. The realtor, Moit, offers his services for those looking to buy, sell, or relocate in Calgary.
Mindmap
Keywords
💡Home Affordability
💡Income
💡Debt
💡Credit Score
💡Mortgage
💡Stress Test
💡Down Payment
💡Condo Fee
💡Appreciation
💡Equity
💡Closing Costs
Highlights
Home affordability is determined by three key factors: income, debt, and credit.
Income includes salary, child benefits, pension plans, and rental income, with variations in how banks assess it based on personal circumstances.
Banks may require two years of consistent income for self-employed individuals and three months for employed individuals to ensure financial stability.
Debt, including credit card debt and private debts, negatively impacts mortgage qualification, especially when it does not generate cash flow.
Good debt management is crucial for a healthy credit score, which is essential for mortgage approval.
Canadian median income is $68,400, with Alberta's average income being one of the highest at $77,000 annually.
Different tiers of income (40K, 60K, 80K, 120K) are used to illustrate potential home affordability in Canada.
A stress test at 5.25% interest rate is used to determine maximum loan amounts for different income levels.
With a $40,000 income, the maximum loan amount is $198,552, highlighting the importance of a 5% down payment.
At $60,000 income, one can qualify for a $280,000 mortgage, with options for 2-3 bedroom condos or townhomes.
An $80,000 income allows for a $360,000 mortgage, opening up possibilities for three-bedroom properties or semi-detached homes.
With a $120,000 income, one can afford a $550,000 mortgage, with the potential for larger homes or refinancing into a dream home.
The video includes a fun experiment to determine the income required to afford a million-dollar property in Canada.
An annual income of $160,000 to $200,000 is needed for a million-dollar property, with a 20% down payment mandatory.
Closing costs for purchasing a property can vary by province, with Alberta having relatively lower fees compared to Ontario or BC.
The video emphasizes the importance of taking action in home ownership rather than waiting for the perfect situation.
Refinancing is suggested as a strategy to move into a dream home after building equity in a first property.
The video concludes with a reminder that these calculations are not legal advice and should be discussed with a mortgage broker or realtor.
Transcripts
as a licensed realtor I get this asked
all the time whether you're actually
looking to buy or just want to plan out
your future how much house can I afford
well let's
[Music]
talk you see your home affordability is
broken down into three categories income
debt and credit income is any constant
money that's coming into your account
this could be your salary Your Child
Benefits your pension plans and in some
cases even your rental income now the
situation of how the bank considers your
income will vary in your case scenario
for example if you're running a business
the banks might require 2 years of
constant income just to see security and
stability or if you're working for
employer they might only consider last 3
months of income it really just depends
on your personal situation and your
financial levels Deb is any money you're
owing to the government it could be your
credit card debt or even any private
debts that you have accumulated on on
your account or just on your private
life and we all talk about good debt and
bad debt but in this case scenario when
you're getting a mortgage almost every
debt is bad debt especially when you're
not cash flowing or you're not making
anything in return of that debt so any
car payments any phones on monthly
installments or even any Electronics or
other items that are on a monthly pay
plan are a huge noo for the banks and
lastly your credit the banks want to
look at how well you handle your money
so they they want to look at a good
credit score and these are kind of the
things you have to build on early ahead
before you're ready to apply for a
mortgage and don't ever be discouraged
because every bad situation can be fixed
if you have a bad credit there are ways
to fix that if you have debt on your
account there are ways to pay that off
and there's ways to save enough income
for your purchase especially nowadays
the government offers wide variety of
programs and wide variety of saving
accounts available for Canadians so in
this example we're going to use 4 tiers
of income 40K 60k 80k and 120k the
Canadian medium income right now say
says 68,4 400 which is very close to the
40K bracket and if you're here in
Alberta the average income is one of the
highest in Canada which is
77,000 annually so we're going to take
that to the closest tier of 880,000 and
we have a tier above that and below that
to kind of give you an average so you
know exactly what you can buy no matter
what price point you're looking at and
at the end of this video we'll do a fun
experiment to see how much you need to
make to buy a million dooll property
here in
Canada now to get to the most accurate
number here I'm going to use a variety
of different sources starting off with
one of these great apps that we're going
to do a stress test with to see how much
you need to make to qualify at the
current interest rate which would be
5.25% and then we're going to do another
experiment to see how much you would
qualify using a 4.25% interest rate that
would kind of give you an idea of when
the interest rates do eventually come
down how much you can expect to pay or
how much more of a mortgage you're able
to get with the lower interest rates so
let's start and remember to keep things
really nice and simple here we're not
considering any debt we're considering a
good credit and we're not considering
any heating expenses any property taxes
or any of the additional things that
might fluctuate the numbers something
like even condo fee could fluctuate the
numbers here and there so keep that in
mind now starting off our gross income
of
40,000 which brings us to a Max loan
amount of 198
552 at a stress test of 6.25 and the
qualification rate of 5.25 again healing
is zero condo fee is zero property taxes
are zero if I add let's say $100 off
property taxes every month that
decreases our amount a little bit and if
we
be more reasonable with the property tax
typically what you would find you're
looking at 168 and if you're looking to
buy a condo in that price range
you are somewhere around 150 145 ballp
part but again to keep things nice and
simple we're going to say you can
qualify for
180,000 using a 40,000 income which
means your 5% down payment would be
9,000 and when you're buying no property
taxes no heating no maintenance no
insurance no utilities nothing else is
added on top here and with that price
range here in Calgary you can find
yourself a one to two bedroom condo like
this one this one or even this one so
most likely older buildings one of the
cheapest entry into real estate here in
Calgary specifically and if you opt in
for the one-bedroom you can find nicer
Renovations newer build properties if
you opt in for the two bedrooms you're
looking at something that are built in
1970s 1980s or sometimes even 960s and
with that remember whenever you're
buying with 5% 10% 15 or anything below
20% down payment you have to pay chmc in
this case scenario with a 180k purchase
price and $9,000 down payment your csmc
comes down to
$684 which means your total mortgage
amount would be $177 8.40 that at a
5.25% interest rate would mean your
monthly mortgage will become
$1,060 and if you're making 40K annually
that means you're roughly making $333
every single month that means almost 32%
of your monthly income will be going
into your mortgage on top of that do
keep in mind you do have your utilities
property taxes maintenances and other
costs that are associated with keeping a
property on the bright side you're
always building Equity into something
that's actually yours you have the
freedom to use the property relocate
move sell and always pull out the
appreciation you're building over the
years next up $60,000 so let's say if
you're making $60,000 every single year
you can qualify for something around
$280,000 that at a 5% down payment means
your down payment would be
$144,000 again no property taxes or heat
included you can buy yourself a 2 to
three bedroom condo or here in Calgary
you can can even find some town homes
around that price point something like
this this
this this this and even this so lots of
great options town homes are where you
feel the freedom and the independence of
living privately where you're not
sharing the walls with a lot of
Neighbors in front of you around you on
top bottom floors and all that kind of
stuff and in this case scenario your
chmc comes down to $106 40 leaving you
with a mortgage of 276 640 and that at a
5.25% interest rate you're looking at a
monthly mortgage of
$649 next up let's say you're making
$80,000 now remember these annual income
can be combined it could be income of
you and your spouse or it could even be
income of you and your brother your
siblings your friends or whoever you're
combining or getting together with to
buy the property with $80,000 you can
qualify for something around
$360,000 that with a 5% down payment is
$18,000 and your csmc on that is
calculated to around
$3,680 leaving you with a total mortgage
of
$355,000
$680 this is where you really open up a
lot of options you can easily find
yourself three-bedroom places it could
be a three-bedroom condo three-bedroom
town home or in some cases if you put a
little bit of more down payment or you
squeeze your budget a little bit you can
even find yourself into a semi detach
property which means there's absolutely
no condo fee you own the land you own
the roof you you own everything about
the house you are just sharing a wall
with another neighbor and these are some
of the semi- detached properties you can
find something like this this this and
this and if you don't like older
properties you can find yourself
something very decent in and around of
downtown or a little bit away from
downtown in a town home like this this
or this and with this your monthly
mortgage would be
$2,020 now moving up to the
$120,000 every year this is where your
options really start to open up you can
qualify for a mortgage of about
$550,000 huge with the down payment of
5.5% you're looking to pay
$3,250 now you may be wondering why the
0.5 you see whenever you're buying a
property that is above the $500,000 Mark
you have to pay a minimum of 10% up to a
100,000 if that sounds a little
confusing let me explain so if you're
buying a property below the 500,000 Mark
you only pay 5% down but the second you
move up from that 500,000 to a Max limit
of a million that balance is what you
have to pay 10% on so in this case we're
going 50,000 over the 500,000 so on that
50,000 we're paying 10% which turns out
to be 5.5% with that your chmc is maxed
out at
$2,790 leaving you with a mortgage of
$540,000 that brings your monthly
payments to
$3,321 now on top of that there's always
closing costs that are associated with a
purchase here in Alberta the things are
a little bit different if you're buying
pre-owned you don't have any GST or any
applicable taxes on top of the purchase
price so all you're really paying for
your closing costs are the lawyer fees
or some property inspection and doing
your due diligence fee which would be
something around $2 to $3,000 you're not
paying your Realtors you're not paying
your mortgage brokers and there's
honestly not a lot other costs
associated in a typical transaction but
if you're living in Ontario BC or any
other provinces the rules could be
different there might be tax
implications or a land transfer fee
Associated on top of the purchase price
keep that in mind now this calculation
is done on 5.25% interest rate hoping
with the prediction of the interest
rates going down moving forward this is
what the same scenarios will look like
with the interest rate of 4.25% so a
difference but not big enough to make
you not want to buy a property because
remember whenever interest rates come
down the demand goes up and when demand
goes up the prices go up so as you
probably already heard buy the property
when you can actually afford and if the
interest rates do come down refinance
and with that these numbers might not
look very appealing especially when
you're looking to buy your first home we
usually have an expectation of what we
want our dream home to look like and we
often miss out on opportunity of taking
action at all just because we can't land
into that dream home so I hope that
makes sense what I'm trying to say is
buy your first property with the intent
of taking the first action and at least
getting into the process of home
ownership ship once you are a landlord
once you have built enough equity in
your own property by paying off your
mortgage and building appreciation over
years then you can refinance put in a
bigger down payment and you can
hopefully land into your ideal dream
home so don't wait because I see my
buyers do this all the time they're
waiting and waiting they're renting this
entire time just because they can't buy
their dream home at The Current
financial situation because honestly
buying a dream home has your very first
home is not only impractical but it's
also very very tough and the longer
you're waiting the longer you're wasting
money into paying rent and on top of
that don't forget you're losing
potential appreciation that would have
came with the purchase of your property
now with the dream of everyone wanting
to be a millionaire and wanting to buy a
million doll property well this is how
much you need to make for a million doll
property you need an income of about
$160,000 to
$200,000 annually with that you also
need a 20% down payment because remember
the second you're buying anything more
than a million dollars you cannot make 5
10 or or 15% down the minimum down
payment is 20% that turns out to
$200,000 cash with 0% chmc your mortgage
amount will be
$800,000 leaving you with a monthly
mortgage of
$431 at a 4.25 interest and in this case
scenario your closing cost will also be
probably a little bit higher so let's
say 3 to 5
grand and with that I hope this video
acts as a self-guide to help you
understand how much you can potentially
qual qualify for a home once again this
is not a legal advice and these numbers
are not firm so make sure you talk to
your mortgage broker and your realtor
who truly understands your unique
circumstances with that I'm a licensed
realtor here in Calgary so if you're
looking to buy sell or relocate give me
a call and I'll be happy to help once
again my name is moit and I'll see you
in the next one
[Music]
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