How Much Home Can You Really Afford?

The mortgage payment is the headline number, but it's far from the whole story. To know what you can actually afford in Ottawa, you need to add three categories most first-time buyers underestimate: one-time closing costs, ongoing monthly carrying costs, and a realistic maintenance reserve.

Lenders in Canada qualify you using the stress test — your payments are calculated at the greater of your contract rate plus 2% or the qualifying rate (currently around 5.25%). They cap your gross debt service ratio at roughly 39% and your total debt service ratio at 44%. Those are maximums, not targets. A safer rule of thumb: keep your housing costs (mortgage + property tax + heat + half of condo fees) under 32% of your gross income, which leaves room for life.

Closing costs in Ontario typically run 1.5%–4% of the purchase price. On a $650,000 Ottawa home that's roughly $9,000–$26,000 due at closing, on top of your down payment. The big-ticket items are land transfer tax (Ontario only — Ottawa doesn't add a municipal one, unlike Toronto), legal fees ($1,500–$2,500), title insurance ($300–$500), home inspection ($450–$700), and the seller-side adjustments for prepaid property tax and utilities.

Monthly carrying costs go beyond the mortgage. Budget property tax at roughly 1.0%–1.1% of assessed value annually in Ottawa, divided by 12. Add home insurance ($90–$160/month for most freeholds), heat and hydro ($200–$350/month depending on size and heating type), water and sewer (~$80/month), and internet. For a condo, add monthly fees and remember those usually include heat and water but not hydro.

Finally, set aside 1% of the home's value per year for maintenance — $6,500/year on a $650,000 home — as a hard reserve. New builds need less in years 1–7 thanks to Tarion, but the furnace, roof, windows, and appliances all have lifespans, and the money has to come from somewhere. Build the reserve into your monthly budget from day one and you'll never be ambushed by a $12,000 furnace replacement in February.

More from the journal:

• Pre-approval vs pre-qualification
• Closing costs in Ontario

Trusted outside sources:

• FCAC mortgage affordability calculator
• OSFI B-20 mortgage stress test