How much House can you Afford in Canada? (Based on Income)

Summary

This 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

00:00

🏠 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.

05:01

📊 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.

10:02

🚀 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.

Keywords

💡Home Affordability

Home affordability refers to the financial capability of an individual or family to purchase a home. In the video, it is discussed as a critical factor in determining how much house one can afford based on income, debt, and credit. The concept is central to the video's theme, as it guides viewers through the process of assessing their financial situation to understand what price range of homes they may qualify for.

💡Income

Income is defined as the money received on a regular basis, such as salary, child benefits, pension, or rental income. The video emphasizes the importance of consistent income in determining eligibility for a mortgage. It also distinguishes how different types of income, such as business income or employment income, can affect the bank's assessment of one's financial stability.

💡Debt

Debt in the context of the video refers to the money owed, which could include credit card debt, private loans, or monthly installments for various purchases. The script highlights that most debts are considered negatively when applying for a mortgage, as they can impact the individual's ability to afford a home. The video advises on the importance of managing and reducing debt to improve mortgage eligibility.

💡Credit Score

A credit score is a numerical representation of an individual's creditworthiness, which is a critical factor for banks when assessing mortgage applications. The video mentions that a good credit score indicates how well one handles money and is an essential component in determining the amount of mortgage one can secure.

💡Mortgage

A mortgage is a loan used to purchase a property, where the property itself serves as collateral for the loan. The video discusses the mortgage qualification process, including factors like income, debt, and credit score, and provides examples of how much mortgage one can afford based on different income levels.

💡Stress Test

A stress test in the context of mortgages is a method used by banks to determine if a borrower can afford their mortgage payments under higher interest rates. The video uses a stress test with a rate of 5.25% to demonstrate how much house one can afford, emphasizing the importance of understanding the impact of interest rates on mortgage affordability.

💡Down Payment

A down payment is the initial amount of money a buyer pays upfront when purchasing a home, which reduces the size of the mortgage needed. The video explains how the down payment is calculated based on the home's price and income level, and how it affects the total mortgage amount and monthly payments.

💡Condo Fee

A condo fee is a monthly charge paid by the owner of a condominium unit to cover the maintenance and management of common areas and amenities. The video mentions that condo fees are not included in the mortgage calculation, which is an important consideration for homebuyers to factor into their overall housing costs.

💡Appreciation

Appreciation in real estate refers to the increase in value of a property over time. The video script touches on the benefits of homeownership, including the potential for property appreciation, which can provide financial benefits to the homeowner in the long term.

💡Equity

Equity in a home is the difference between the market value of the property and the amount still owed on its mortgage. The video discusses building equity as a homeowner, which is an advantage of paying off a mortgage and potentially increasing the property's value over time.

💡Closing Costs

Closing costs are various fees and expenses that must be paid at the time of closing a real estate transaction. The video provides an estimate of closing costs in Alberta, which includes lawyer fees and property inspection fees, and notes that these costs can vary by province.

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]