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CANADA MORTGAGE AND HOUSING CORPORATION
 

Important Notice

As of February 15, 2016, the minimum down payment requirement for mortgage loan insurance depends on the purchase price of the home. For a purchase price (or lending value) of $500,000 or less, the minimum down payment is 5%. When the purchase price (or lending value) is above $500,000, the minimum down payment, as a percentage of lending value, is 5% for the first $500,000 and 10% for the remaining portion.

Example:

For a home with a purchase price (or lending value) of $600,000, the minimum down payment required is:

= 5% of $500,000 + 10% of $100,000
= $25,000 + $10,000
= $35,000

Are You Financially Ready?

Are You Financially Ready?

Introduction Slide

(Visual) Canada Mortgage and Housing Corporation Logo

(Visual) Text: The CLASSROOM for Mortgage Professionals. Free training and webinars to expand your expertise

Slide 1

(Visual) Header Text: Canada Mortgage and Housing Corporation, Homebuying Step by Step

(Visual) Title: Are you financially ready?

(Visual) Footer: Everything you need to open new doors, Canada Wordmark and Canada Mortgage and Housing Corporation Logo with Home to Canadians tagline

So you’ve decided that homeownership is right for you. The next step is to look at whether you are financially ready to buy a home.

This presentation will help you evaluate your current financial situation and determine what you can afford.

Slide 2

(Visual) Header Text: Are you financially ready?

(Visual) Subtitle Text: In this presentation, we will cover how to:

(Visual) Footer: www.cmhc.ca and Canada Mortgage and Housing Corporation Logo with Home to Canadians tagline are used throughout the presentation

In this presentation, we will cover how to:

  1. Evaluate your financial readiness for homeownership
  2. Assess the payment you can afford with key calculations that are used by mortgage professionals
  3. Determine your maximum home price
  4. Obtain a mortgage pre-approval from your mortgage professional and how you can benefit

Slide 3

(Visual) Header Text: Evaluate Your Financial Readiness

(Visual) Subtitle Text: Steps to evaluating your financial readiness

There are a few different exercises that you can complete to help assess your financial readiness for homeownership. These include:

  • Calculating your net worth
  • Reviewing your current monthly expenses
  • Calculating your debt payments

Let’s look at each of these exercises in more detail, starting with net worth.

Slide 4

(Visual) Header Text: Evaluate Your Financial Readiness

(Visual) Subtitle Text: Calculate Your Net Worth

Your net financial worth is calculated by subtracting your total liabilities from your total assets. You’ll need this information when you meet with your mortgage professional. It will also give you a snapshot of your current financial situation and how much you can afford as a down payment.

Your assets include your savings, RRSPs, other investments like stocks, bonds, and mutual funds, as well as real estate and vehicles.

Liabilities include any car loans, student loans, credit cards, lines of credit and any other loans that you may have.

Slide 5

(Visual) Header Text: Evaluate Your Financial Readiness

(Visual) Subtitle Text: Review Your Current Monthly Expenses

Next you can review your current monthly expenses. Consider both your current housing and non-housing expenses to identify what your monthly obligations are. Your mortgage professional will use this information to assess the kind of mortgage payment you can comfortably afford.

  • Housing expenses may include rent, utilities, maintenance and parking
  • Non-housing expenses may include groceries, child care expenses, cable, gas, entertainment, and insurance

Slide 6

(Visual) Header Text: Evaluate Your Financial Readiness

(Visual) Subtitle Text: Calculate your monthly debt obligations

The next exercise that helps in assessing your financial situation is calculating your debt obligations.

Before visiting your mortgage professional, calculate how much you owe and what monthly payments you make to cover debts.

Slide 7

(Visual) Header Text: Calculate the Payment You Can Afford

(Visual) Subtitle Text: Guideline 1: Monthly housing costs should not exceed 32% of your gross monthly household income

The next step is to find out what you can afford in monthly housing costs. Mortgage Professionals follow two simple affordability rules to figure this out.

The first guideline is that your monthly housing costs shouldn’t be more than 32% of your gross household monthly income.

Your mortgage professional calculates what percentage of your gross monthly income is taken up by housing costs. These costs include monthly mortgage principal and interest, taxes and heating expenses. This figure is known as your Gross Debt Service ratio.

Slide 8

(Visual) Header Text: Calculate the Payment You Can Afford

(Visual) Subtitle Text: Guideline 2: Your entire monthly debt load should not be more that 40% of your gross monthly household income

The second affordability guideline is that your entire monthly debt load shouldn’t be more than 40% of your gross monthly income. This includes housing costs and other debts such as car loans and credit card payments. Lenders add up these debts to determine the percentage of your gross household monthly income required to pay your debts. This figure is your Total Debt Service ratio.

Slide 9

(Visual) Header Text: Determine Your Maximum Home Price

(Visual) Subtitle Text: Your maximum home price depends on a number of factors, with the most important being:

While the affordability guidelines determine what you could afford in terms of monthly housing costs, the maximum home price that you can afford depends on a number of factors, the most important of which are your gross household income, your down payment and the mortgage interest rate.

Slide 10

(Visual) Header Text: Determine Your Maximum Home Price

For most people, one of the hardest parts of buying a home — especially your first one — is saving the necessary down payment. Many people will not have a traditional down payment of 20% of the purchase price. With Mortgage Loan Insurance, you can purchase a home with a minimum down payment of 5%, with interest rates comparable to those typically reserved for homebuyers with a down payment of 20% or more.

Slide 11

(Visual) Header Text: Get a Mortgage Pre-Approval

(Visual) Text on Slide: Your Mortgage Professional will determine the amount you can afford.

Once you’ve made the necessary calculations and feel that you are ready to obtain a mortgage, it’s a good idea to get a mortgage pre-approval from your mortgage professional. This means that the Mortgage Professional will look at your finances to establish the amount of mortgage you can afford.

At that time, you will receive a confirmation of an interest rate that is guaranteed for a fixed period.

Some buyers may not wish to pursue a mortgage pre-approval until they have found the home they want to buy; however, having a pre-approved mortgage amount makes the search for your new home much easier and less time consuming because you have a realistic price range in mind.

Slide 12

(Visual) Header Text: Get a Mortgage Pre-Approval

(Visual) Text on Slide: Be ready to provide your mortgage professional with:

It helps to be prepared for your first meeting with your mortgage professional. Some of the information to provide when you meet includes your personal information, employment information, bank details and your sources of funds with which you plan to pay for your house.

Slide 13

(Visual) Header Text: Are you financially ready?

(Visual) Text on Slide: Evaluate your financial readiness, Calculate the payment you can afford, Determine your maximum home price, Get a mortgage pre-approval

In summary, once you have completed these steps, you will be confident in knowing if you are financially ready to buy a home.

Slide 14

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(Visual) Disclaimer: This presentation is not intended to provide financial or other advice and should not be relied upon in that regard. The information (including the assumptions and examples) it contains are provided for general illustrative and estimative purposes only, and does not take into account the specific objectives, circumstances and individual needs of the reader. All information is provided on an "as is" basis without warranty or representation of any kind, express or implied and it is not intended the reader will rely on this information without verifying the full terms of CMHC underwriting policies. The reader should be aware that other conditions, requirements and restrictions may apply and that the information is subject to change without notice. CMHC assumes no responsibility or liability of any kind in connection with the information provided. CMHC and the names of any CMHC products and services, as well as any logos or drawings are trademarks, registered trademarks or official marks of CMHC.© 2012, Canada Mortgage and Housing Corporation. All rights reserved.

Slide 15

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