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.