Knowing what you can afford is the absolute first step to buying a home in Collingwood or the Blue Mountains. You don’t want to go looking for homes and come up empty-handed because you thought you could afford more than you actually could!

Start with a mortgage affordability calculator

Most banks have mortgage affordability calculators on their website. Here you will enter in your household income, debt payments, down payment and amortization (how long you want to have the mortgage for). It will give you a rough idea of what you can afford in a monthly, weekly or bi-weekly payment.

Get pre-approved

Once you’ve done this step, get your finances in order and head to the bank to find out actually how much the bank will give you. All first-time homebuyers should have a pre-approval in hand before setting out to look at homes. This will give you a good range in which to conduct your search and give the sellers more confidence in your commitment to buy a home (you just need approval upon acceptance of an offer).

Put a budget together

The first thing to realize is that it is possible that the bank will approve you for more than you can actually comfortably afford. Only you know what sort of money you want to have left over after making mortgage and property tax payments. As well, you want some sort of contingency for if anything goes wrong in the home and to have a healthy maintenance budget for things you want to do with the home. Your first home will undoubtedly require some changes, even if they are only aesthetic, but you’ll want to budget for this. There are many online resources for putting together a budget.

Know your TDS and GDS

Here are two more confusing acronyms for the first-time homebuyer! GDS is gross debt service ratio. Basically, it is the percentage of your income needed to pay all of your monthly housing costs. As we talked about above, when budgeting, you’ll want to consider both your gross debt service ratio and your other expenses. Either way, the majority of lenders only want you to spend a maximum of 32% on your gross debt service. It will include mortgage, property taxes, heat and 50% of condo fees.

create a budget so you know what you can afford

Your TDS is your total debt service ratio, which is all of your GDS plus your debts. This amount should not be above 40% in a lender’s eyes.

If your pre-approval is lower than you thought it would be, based on your income, it could be based on those two factors: TDS and GDS. This means that:

1) Your debts are too high

2) Your home price is too high for your income

3) Your home price is too high for your income and the debts you have

First time home buyers grants, tax breaks and loans. Speak with your local lending institution and your real estate professional about any special financing or tax breaks that you can take advantage of. Many levels of government offer programs to help people get in the property ladder. Here are a few examples:

Simcoe County: Homeownership Program aims to assist low-to-moderate income renter households, in Simcoe County, to purchase an affordable home by providing 10% down payment assistance in the form of a forgivable loan. http://www.simcoe.ca/homeownership

Ontario Land Transfer Tax Rebate: When you buy land or an interest in land in Ontario, you pay land transfer tax. First-time homebuyers of an eligible home may be eligible for a refund of all or part of the tax. Up to $4,000. http://www.fin.gov.on.ca/en/bulletins/ltt/1_2008.html

Federal Government: Home Buyers' Plan: (HBP) is a program that allows you to withdraw up to $25,000 in a calendar year from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. http://www.cra-arc.gc.ca/hbp/

Work with your mortgage and real estate professionals to find a Collingwood home or condo that fits into what you can actually afford and take advantage of the programs that are available. It may save you thousands in the long run.