Understanding how much home you can afford before you begin the search will save you a lot of time. You won’t waste time looking at – and falling in love with – homes that you ultimately cannot afford. (Trust us, this is a traumatic experience.)

To determine a home price range that you will feel comfortable with fitting into your budget, you first need to have a basic understanding of how mortgages work.

A mortgage is a long-term loan that can last 25 to 30 years. You’ll use the loan proceeds from the lending institution to make the home purchase, and then pay back that loan over the next few decades with interest.

Although it can be daunting to think of committing to a financial obligation for such a long time, you have to remember that a home’s value typically appreciates over time. This means your first home can be a good investment, which makes it easier to stomach the idea of a mortgage loan.

Because the purchase price of the home is such a large number, it’s nearly impossible to figure out how much of a mortgage loan you can afford just based on the purchase price of the property.

Instead, try breaking down the price of the home into what the monthly payment on the loan will be. We’ve listed some of the best mortgage calculators available on the Internet to help you calculate this number, which you then can plug into your household budget.

One of the most challenging aspects of obtaining a mortgage is finding the money for a down payment. The down payment is an amount of money you’ll pay before receiving the loan. When purchasing the home, the down payment goes toward the amount of the purchase, with the mortgage loan making up the remaining amount.

For most home purchases in Canada, lending institutions like to have the borrower come up with a 20% down payment amount. This can be a tough number for a first-time home buyer, as 20% on a $200,000 home would be $40,000.

Depending on your financial situation and the lending institution you’re using, having less than a 20% down payment available will prevent you from qualifying for a mortgage loan.

There certainly are financial situations where Canadians can purchase homes with less than 20% down payment amounts, but you may have to provide some additional personal information, pay additional fees with your monthly payment, or agree to pay a higher interest rate.

Some institutions will write loans for as little as a 5% down payment, but you may have to search around to find one.

As of this writing, those Canadian first-time home buyers who have less than a 20% down payment will need mortgage premium insurance. Mortgage premium insurance provides protection to the lending institution should you ever default on the loan. (However, this amount doesn’t give you any protection and it doesn’t reduce your principal.)

You can think of mortgage insurance as an extra fee that you have to give to the lending institution so you can receive a mortgage loan with a less than 20% down payment for a property.

Ultimately, you will want to provide at least a 20% down payment property if at all possible. To progress toward this number, try to save as much as you can over time.

Even small savings will add up over time. Try going to restaurants less often or avoid visiting gourmet coffee shops. Maybe you can pick up a part time job on the weekends.

Additionally, don’t forget about the down payment funding options we discussed earlier, such as borrowing money from your RRSP or obtaining a low-interest loan in Alberta. 

First-time home buyers often spend more time worrying about mortgage loan interest rates than they should. Certainly, the interest rate you will receive plays a role in determining how much home you can afford, so it is important.

Ultimately though, there’s no reason to spend multiple times per day obsessively trying to track the movement of mortgage loan interest rates. Trying to time the movement of mortgage rates in the market will drive you crazy if you spend too much time thinking about it.

Instead, we’d suggest you spend more time trying to find other ways to save money on your mortgage loan. For example, improving your credit score will earn you a better interest rate on your mortgage loan, probably saving you more money over the long run versus wearing out the refresh button on your web browser trying to track miniscule movements of interest rates.

Additionally, shop around with different lending institutions to find the best mortgage rate. You might be surprised how much of a difference there is from bank to bank if you’re willing to invest a bit of time in researching the various options.

Most importantly, make sure you have a down payment of at least 20%. If you have to pay mortgage premium insurance, you’re going to cost yourself far more money per month than even a big swing in interest rates will cost you over the long run.

If you want to freak out just a little bit, start looking at home prices in their entirety without thinking about the monthly amount you’ll be paying. The full cost for a home is a huge number that’s so daunting and overwhelming that you might decide apartment living is more your speed … forever.

That’s why breaking down the home cost into monthly installments is a far smarter – and less stressful – idea. You can use the mortgage calculators we discussed earlier to help you figure out your monthly payment amount on a particular home purchase.

By breaking the home cost into monthly installments, you’ll be better able to see how the number fits into your monthly household budget and to compare the number to what you’re paying now in rent.

In addition to the monthly amount of the mortgage loan installments, you also will have to pay for property repairs and maintenance yourself. (No more calling the landlord when you have a leaky faucet.)

You may have a few extra utility costs in a home versus what you paid in an apartment. Your home owners’ insurance will carry a higher premium versus renters’ insurance as well.

However, because your home will appreciate in value over time, home prices start to work in your favor the longer you live in the home and keep up on maintenance tasks.

So when you eventually sell the home, you’ll receive a higher price tag than what you paid initially. Your home’s value will grow at the same time that your loan balance shrinks, which feels great! 

No matter how much preparation time you spend, the work involved in buying a home can be very stressful. It’ll feel great once you’re finished, but the finish line can feel like it’s several kilometers away at different points during the process.

Qualifying for a mortgage, finding money for a down payment, and signing all of the papers can be stressful enough, but then you still have to find the right home for your needs. This can require a lot of time on your part, which can feel like a waste if someone swoops in and outbids you at the last second.

The best advice we can provide is to try to maintain a sense of calm during the process. We understand this sounds easier than it actually is. Just try to keep in mind that there will be plenty of ups and downs as you go through the process of finding and purchasing a home. If you’ve had bad news a couple of days in a row, good news is sure to appear at some point soon.

Ultimately, you may have to settle for a first home that doesn’t have all of the bells and whistles you want … or that those fancy home remodeling TV shows tell you that you should want. Missing out on a few desired features typically is just part of the process of buying a first home.

You always have the option of adding those must-have features in a remodel later. After you’ve lived in the home for a few years, you may find that you actually want a different feature than you initially thought you needed, and a remodeling job can take care of it. And now that you’re a home owner, you can do the work yourself without having to worry about whether the apartment landlord will give you permission.