How Much House Can You Afford? A New Year’s Guide for Albertans Preparing to Buy in 2025

As the new year begins, many Albertans are considering buying a home in 2025. But before diving into the real estate market, it’s essential to figure out how much house you can realistically afford. This step is critical to setting yourself up for financial success and avoiding the pitfalls of overspending. Whether you're a first-time buyer or looking to upgrade, here's how you can determine your home-buying budget and make smart decisions as you plan for the year ahead.

1. Review Your Financial Health: Income and Debt

One of the first steps in figuring out how much house you can afford is taking a close look at your income and debt. Mortgage lenders use two primary ratios to assess your affordability:

• Gross Debt Service (GDS) Ratio: This ratio measures the percentage of your income that goes toward your housing costs (mortgage, property taxes, heating, and condo fees, if applicable).

• Total Debt Service (TDS) Ratio: This measures the percentage of your income used to cover all debts, including housing costs, credit card payments, and loans.

By calculating these ratios, you can gain a better understanding of what size mortgage you can comfortably afford. There is a great breakdown in My First Time Home Buyers Guide or you can download My Mortgage Planner App.

2. Determine Your Down Payment

In Alberta, the minimum down payment required depends on the price of the home:

• Homes under $500,000: You need a minimum down payment of 5%.

• Homes between $500,000 and $1,000,000: You’ll need 5% for the first $500,000 and 10% for the portion above that.

For instance, if you’re purchasing a home in Edmonton for $550,000, your minimum down payment would be $25,000 for the first $500,000 and an additional $5,000 for the remaining $50,000—bringing your total to $30,000.

A larger down payment can help lower your monthly payments and reduce the amount of interest you’ll pay over the life of your mortgage.

3. Account for Interest Rates

As you head into the new year, keep an eye on interest rates, as they directly impact how much house you can afford. Whether you choose a fixed-rate mortgage (which provides stability) or a variable-rate mortgage (which fluctuates based on the market), the rates you qualify for will influence your monthly payments.

Working with a mortgage broker can be a great asset in your home-buying journey. As a mortgage broker, I have access to a wide range of lenders and mortgage products, ensuring you get the best rates and terms suited to your financial situation

4. Consider Additional Costs of Homeownership

In Alberta, homeownership comes with additional costs beyond the mortgage. It’s important to factor in:

• Property taxes (which vary by municipality)

• Home insurance

• Utilities and maintenance

• Closing costs, such as legal fees and home inspections

These costs can add up and should be considered when determining how much house you can afford. Properly budgeting for these expenses will help you avoid financial strain once you’ve purchased your home.

5. Get Pre-Approved for a Mortgage

Starting the new year with a mortgage pre-approval is a smart move for anyone planning to buy in 2025. A pre-approval gives you a clear idea of how much a lender is willing to offer, and it strengthens your bargaining position with sellers. It also helps you focus your home search on properties within your budget, saving you time and frustration.

Conclusion

Are you ready to take the first step toward homeownership in 2025? I’m here to help guide you through every stage of the process. If you’re looking to buy in Sherwood Park, Edmonton, or anywhere in Alberta, reach out to me today for personalized advice and support. Let’s work together to find out how much house you can afford and secure the best mortgage for your needs. Contact me to get started on your journey to homeownership!