How Much House Can You Actually Afford?

What a lender will actually approve you for

Canadian mortgage lenders size your maximum borrowing using two ratios: Gross Debt Service (GDS), which is housing costs — mortgage payment, property tax, heating, and half of condo fees if applicable — as a share of your gross income, and Total Debt Service (TDS), which adds in your other debts like car loans and credit cards. Each ratio has a guideline ceiling lenders generally won't exceed, though the exact thresholds can vary by lender and by whether the mortgage is insured.

On top of that, federally regulated lenders apply a stress test: you have to qualify at a "qualifying rate" that's higher than the actual rate you'll pay, so the bank knows you could handle a renewal at a worse rate down the road. This mechanism has been in place since 2018 and still shapes approvals in 2026, though the specific benchmark rate moves with the market — confirm the current figure with your lender or the Financial Consumer Agency of Canada before you count on a specific approval amount.

The result of all this math is a pre-approval letter with a maximum purchase price on it. Treat that number as a ceiling you're allowed to touch, not a target you should aim for.

The costs your pre-approval doesn't account for

Pre-approval math is built around the mortgage payment itself, but owning a home costs more than the payment. Before you set your real budget, add in the expenses that don't show up on a lender's worksheet.

• Closing costs: legal fees, land transfer tax (which varies significantly by province and sometimes by municipality), title insurance, and inspection fees, typically due in a lump sum at closing
• Ongoing costs: property tax reassessments, home insurance, utilities, and maintenance, which tends to run a meaningful percentage of a home's value every year over time
• Condo or HOA fees, if applicable, which can rise faster than inflation and aren't always fully captured in GDS calculations
• The opportunity cost of tying up your down payment and closing costs in a single, illiquid asset instead of keeping some of that money accessible for emergencies

None of these are exotic surprises, but they're easy to underweight when you're focused on the sticker price of the home and the size of the mortgage payment.

Where your down payment actually comes from

Your down payment size affects both your monthly payment and whether you need mortgage default insurance. In Canada, homes purchased with less than 20% down generally require mortgage insurance, arranged through an insurer like CMHC, which adds a premium to your mortgage but allows a lower minimum down payment. The minimum down payment percentage rises in tiers as the purchase price increases, and the rules around insured mortgages — including price caps and maximum amortization — have been updated in recent years, so check the current thresholds directly on the CMHC website rather than relying on an older figure you've seen elsewhere.

Two registered accounts are built specifically to help you save for this. The Home Buyers' Plan lets first-time buyers withdraw RRSP savings tax-free toward a purchase, repayable over roughly 15 years. The First Home Savings Account (FHSA), introduced in 2023, lets you contribute with an RRSP-style tax deduction and withdraw tax-free like a TFSA when the money goes toward a qualifying first home. Contribution and withdrawal limits for both have shifted since launch, so confirm the current numbers with the CRA before you build a savings plan around them.

A larger down payment isn't just about avoiding insurance premiums — it directly shrinks the size of the mortgage you're carrying, which matters a lot if rates are higher when it's time to renew.

A practical way to land on your number

Start from your take-home pay, not your gross income, and work out what you could comfortably put toward housing every month while still saving something and covering the rest of your life. Compare that to what the GDS/TDS math says you'd qualify for — if there's a big gap, that gap is your real safety margin.

Stress-test yourself the way the lender does, but go further: model your payment at a meaningfully higher rate than today's, since you'll likely renew at least once or twice over a typical amortization. If that renewal scenario would genuinely strain your budget, you're borrowing too close to the edge even if the bank says otherwise.

Finally, decide on affordability as a household decision, not just a math exercise. Two people with identical incomes and identical pre-approvals can have very different tolerances for risk, job stability, and how much of their life they want tied up in a mortgage payment. The right number is the largest one you'd still be comfortable with in a worse year, not the largest one a lender will sign off on.

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