It’s often the largest purchase canadians will make, but many enter into the great adventure of homeownership without completing the proper financial homework.

Before embarking on your house hunt, you should determine what you can afford first. A common rule of thumb is that your household expenses should not add up to more than 40% of your household income before taxes.

Next, you’ll have to decide on the type and size of mortgage that best suits your needs. The two basic options are a conventional mortgage, which requires at least a 20% down payment, and a high ratio mortgage, which is designed for people who do not have the 20% down payment. If you purchase a home with a high ratio mortgage, you will pay mortgage default insurance which transfers the risk of default from the lender to the mortgage insurer. (See Understanding Mortgage Insurance on page 13 for more details).

“Mortgage default insurance helps buyers own a home more affordably and stay in their residence during difficult financial times,” says Peter Vukanovich, President and Chief Operating Officer for Genworth Financial Canada. “Our priority is to provide first-time homebuyers with the information they need to make good decisions and achieve their homeownership goals.”

Other decisions about a mortgage involves the choice between a variable rate, which involves a fluctuating interest rate; and a fixed-rate mortgage, which as the name implies, means you pay a fixed interest rate for a set term such as three, five or 10 years. If you choose a variable rate mortgage, it’s important to understand that your monthly payments may increase if interest rates rise. By selecting a mortgage with prepayment privileges, such as lump sum, accelerated bi-weekly or monthly payment options, you can reduce your amortization period and save thousands of dollars in interest in the long run.

To help you understand your choices and ensure you’re financially prepared, many websites including offer a wealth of financial information for homebuyers. Speaking to a mortgage professional will also help you work through your specific needs.

Achieve the homeownership dream sooner