Affordability is a major concern for today's aspiring first-time home buyers. In hot real estate markets like the Greater Toronto and Greater Vancouver regions, however, the desire for affordability can be challenged by the competitive emotion caused by escalating prices and bidding wars. As anyone who has researched home ownership in these markets knows, it's easy to feel the pressure to bid higher than you'd like.

Resist the urge. It's important to go house hunting with a firm price range in mind. If something is outside of your budget, it's not affordable - period. A successful home purchase isn't about beating out 20 other offers; it's about sealing the deal on a home you can afford, with money left over each month after your mortgage is paid, to cover your other expenses, savings and a little bit of fun, too.

Resist the urge. It's important to go house hunting with a firm price range in mind. If something is outside of your budget, it's not affordable - period. A successful home purchase isn't about beating out 20 other offers; it's about sealing the deal on a home you can afford, with money left over each month after your mortgage is paid, to cover your other expenses, savings and a little bit of fun, too.

It's a tall order, but there is a formula to help you find that sweet spot.
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Find Your Right Price

Lenders and mortgage insurers look at two debt service ratios when qualifying you for a mortgage (and mortgage insurance, which you will need if you make a down payment of less than 20 per cent the cost of the home).
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Gross Debt Service (GDS)

The carrying costs of your home, such as mortgage payments, property taxes, heating, etc., relative to your income.
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Total Debt Service (TDS)

Home carrying costs (mortgage payments, property taxes, heating, etc.) plus your debt payments (credit cards, student loans, car loans, etc.), again relative to your income.
The highest allowable GDS ratio is 39 per cent, and the highest allowable TDS ratio is 44 per cent.
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Want a shortcut to determining affordability?

Use CMHC's online "Affordability Calculator" to estimate how much of a mortgage you can afford. Input your income, current monthly debt payments and other details for an instant result that shows how much mortgage you can comfortably afford. (Note: For the interest rate, be sure to consider the stress test. Lenders add 2% to their rate when determining GDS and TDS.)

Down Payment Strategies

Once you know how much mortgage you can manage, limit your house hunt to homes that keep you in that price range. That way, you won't panic or find yourself in financial trouble if interest rates go up in the future.

You can buy "more house" for the same total mortgage if you have a larger down payment. Saving aggressively is one way to do that. Pair that with other strategies, such as the following:
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The other way to end up with a smaller mortgage is to buy a less pricey house. Finding a house with rental income potential, or a fixer-upper, but the most dramatic payoff may come from expanding your search to a wider radius.

​Consider buying in a nearby city or suburb that you can commute to work from. Or blaze new ground by moving farther a field in search of a new home and new adventures - with the spare cash to enjoy them both!