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A home is most likely one of the biggest purchases you’ll make in your lifetime. Like any major expense, you should plan on saving for your new home long before you begin the actual home-buying process. While your focus will be on coming up with your down payment and determining the maximum amount you can spend on your new home, you should also think about how this significant purchase will impact your monthly budget and overall financial situation once you’ve moved in.

You’ll also want to consider getting a mortgage pre-approval to help give you a better idea of your monthly payment amounts as well as how much your down payment will be.

Factor in all your expenses

Your monthly mortgage payment, while likely to be substantial, will be only one expense among the many associated with owning a home. In addition to your fixed monthly expenses, like food, clothing, gas, phone, medications, plus any lifestyle/entertainment costs, there’s your other debt (credit cards, loans) to consider.

Here are some of the other specific home ownership costs you’re likely to be juggling every month (and want to factor into any realistic budget):

Ongoing costs:

  • Real estate taxes
  • Homeowners insurance
  • HomeProtector® Mortgage Insurance
  • Phone/cable/Internet
  • Auto/health insurance
  • Heat/water/utilities
  • Home maintenance, cleaning and repairs (and/or condo fees)
  • Property/yard/garden maintenance

Other one-time costs:

  • Appliances/furniture
  • Blinds/curtains/window treatments
  • Lawnmower/snow blower

You may also want to think about having a “rainy day” fund to cover those emergency home repairs (plumbing, electrical, etc.) that could occur at some point—usually when you’re least prepared to pay for them. In addition, you may want to give some thought to your future income and expenses, asking yourself questions that could include:

  • How long are you planning to live in the house?
  • Can you estimate what your future income (pay increases, a new job, any loss of income if you have a child and plan to stay at home) and expenses (getting a second car or have another child) might be 2, 3, even 5 years or more down the road?
  • Will you have child care costs at some point (or if you currently have them, how will they increase if you have another child or will they go away as your children grow up)?

Helpful expense guidelines

Here are two formulas used by many mortgage lenders to help give you a starting point when determining how much you’ll need to cover your housing costs and total outstanding debt.

  • Gross Debt Service (GDS) Ratio. No more than 30% to 32% of your gross annual income should go to mortgage related expenses, which include principal, interest, property taxes and heating costs (plus condo fees if appropriate).
  • Total Debt Service (TDS) Ratio. TDS evaluates the gross annual income needed for all debt payments, which typically include house, credit cards, personal loans and car loan. Depending on the lender, TDS payments should not exceed 37% to 40% of your gross annual income. The combined incomes for you and your spouse are usually considered, when determining this ratio.

Consult your mortgage specialist for help identifying and budgeting for all the costs associated with home ownership.

The strategies, advice and technical content in this publication are provided for the general guidance only and benefit of our clients. This publication is not intended to provide specific mortgage, financial, investment, tax, legal, accounting or other advice for you, and should not be relied upon in that regard. Readers should consult their own professional advisor when planning to implement a strategy to ensure that individual circumstances have been considered properly and it is based on the latest available information.

Personal lending products and residential mortgages are offered by Royal Bank of Canada and are subject to its standard lending criteria. Some conditions apply.

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