Your Financial Health Checklist

Before you start shopping for homes or applying for mortgages, it is worth taking an honest look at your overall financial health. Buying a home is likely the largest financial commitment you will ever make, and going in well-prepared makes the process smoother, less stressful, and ultimately more successful.

This checklist is not a pass-or-fail test. You do not need to check every single box. But the more items you can check off, the more confident you should feel about moving forward — and the items you cannot check will tell you exactly where to focus your preparation.

Understanding Debt-to-Income Ratios

Lenders use two key ratios to determine how much you can borrow. Understanding these before you apply helps you set realistic expectations. We cover these ratios in detail in our GDS & TDS ratios guide.

Gross Debt Service (GDS) Ratio

Your GDS ratio measures the percentage of your gross (before-tax) monthly income that goes toward housing costs. Lenders typically require this to be 32% or less.

Housing costs include:

• Mortgage principal and interest payment
• Property taxes
• Heating costs
• 50% of condo fees (if applicable)

Example: If your gross monthly income is $7,500, your maximum monthly housing costs should be $7,500 x 0.32 = $2,400.

Total Debt Service (TDS) Ratio

Your TDS ratio measures the percentage of your gross monthly income that goes toward all debt payments, including housing costs. Lenders typically require this to be 44% or less.

Total debt payments include everything in GDS, plus:

• Car loan or lease payments
• Student loan payments
• Minimum credit card payments
• Personal loan payments
• Lines of credit (typically 3% of the balance as a notional payment)
• Any other recurring debt obligations

Example: If your gross monthly income is $7,500 and you have a $350/month car payment and $200/month student loan payment, your maximum total debt payments are $7,500 x 0.44 = $3,300. After subtracting the car loan ($350) and student loan ($200), you have $2,750 available for housing costs.

Tip

Calculate your own GDS and TDS ratios before you visit a lender. Knowing your numbers in advance helps you understand what price range is realistic and prevents the disappointment of falling in love with a home you cannot afford. Our affordability calculator will compute these ratios for you automatically.

What If Your Ratios Are Too High?

If your debt-to-income ratios exceed the limits, you have several options:

• Pay down debt. Eliminating a car payment or paying off credit card balances directly improves your ratios. Paying off a $400/month car loan could increase your maximum mortgage by $55,000 to $65,000.
• Increase your income. A raise, a second income, or adding a co-borrower improves the income side of the ratio.
• Lower your target purchase price. A less expensive home means a smaller mortgage and lower monthly payments.
• Extend the amortization period. A 30-year amortization (available with 20%+ down) lowers monthly payments compared to 25 years, though you pay more interest overall.

The Emergency Fund Requirement

This is one of the most overlooked aspects of home buying readiness. Do not drain every dollar into your down payment. You need a financial cushion for life’s surprises — and as a homeowner, those surprises tend to be bigger and more expensive than when you were renting.

How Much Do You Need?

Aim for an emergency fund of at least 3 to 6 months of expenses that is completely separate from your down payment. For most Canadian households, this means $10,000 to $25,000 set aside in an accessible, liquid account (a high-interest savings account or TFSA works well).

Why It Matters More for Homeowners

When you are renting, the landlord handles the broken furnace, the leaky roof, and the failed water heater. As a homeowner, those are your bills. Consider these common surprise costs:

• Furnace failure in January: $4,000 to $7,000 for replacement
• Basement flood: $5,000 to $15,000+ for cleanup and repairs, depending on insurance coverage
• Roof repair: $3,000 to $8,000 for partial repairs, $10,000 to $20,000+ for full replacement
• Appliance replacement: $1,500 to $3,500 for a refrigerator or washer/dryer set
• Plumbing emergency: $500 to $3,000 depending on the issue

Without an emergency fund, any of these could push you into high-interest debt or force you to miss mortgage payments — which damages your credit and can spiral quickly.

Caution

The number one financial mistake new homeowners make is spending their entire savings on the down payment and closing costs, leaving nothing in reserve. Even if it means buying a slightly less expensive home or waiting a few more months to save, having an emergency fund is non-negotiable.

Job and Income Stability

Lenders care about income stability, and you should too. A mortgage is a long-term commitment, and you need confidence that your income will be there to support it.

What Lenders Look For

• Employed borrowers: At least 2 years with the same employer, or in the same industry. If you recently changed jobs but stayed in the same field and your income is the same or higher, most lenders will be comfortable.
• Probationary period: If you are still in a probationary period at a new job, some lenders may decline or delay your application. Consider waiting until probation ends — typically 3 to 6 months.
• Self-employed borrowers: Most lenders require 2 years of tax returns (Notices of Assessment from the CRA) showing consistent or growing income. Self-employed borrowers often face more scrutiny, and some may need to provide a larger down payment.
• Commission or variable income: If a significant portion of your income comes from commissions, bonuses, or overtime, lenders typically average the past 2 years. Be prepared to document this income thoroughly.

Questions to Ask Yourself

• Is your industry stable, or is it subject to layoffs, seasonal slowdowns, or disruption?
• Could you continue making mortgage payments if you lost your job and it took 3 to 6 months to find a new one? (This is where the emergency fund comes in.)
• If you are buying with a partner, could either of you carry the mortgage payments alone for a period if needed?

Your Complete Readiness Checklist

Work through each section honestly. Check off what applies, and make a plan for anything that does not.

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Income and Employment

• Stable job or 2+ years self-employment history
• Predictable income sufficient for housing costs plus obligations
• Plan to wait out probation period before applying
• 2 years of Notices of Assessment if self-employed

Savings

• Down payment saved (5% minimum for homes under $500K)
• Additional 1.5%–4% for closing costs
• Emergency fund of 3–6 months of expenses (separate from down payment)

Debt

• GDS ratio would be 32% or less
• TDS ratio would be 44% or less
• Plan to pay off high-interest consumer debt
• No outstanding collections or judgments

Credit

• Credit score 680 or higher
• Credit report free of errors
• No new credit applications in past 6 months
• Partner also meets credit requirements (if applicable)

Lifestyle Readiness

• Plan to stay in same area for 5+ years
• Comfortable with home maintenance responsibility
• Discussed finances openly with partner (if buying together)
• Understand reduced flexibility from homeownership
• Buying for genuine desire, not social pressure

Tip

If you checked most of these boxes, you are in a strong position to start the home buying process. If several items gave you pause, that is perfectly okay — it just means you have some preparation work to do first. Coming back to this checklist in 6 to 12 months after addressing the gaps is a smart strategy, not a failure. The worst thing you can do is rush into a purchase you are not ready for.

Creating Your Action Plan

For any items you could not check off, set a specific timeline:

1. Credit score below 680? Start the improvement strategies today. Most people can gain 30 to 80 points in 6 to 12 months with consistent effort.
2. Not enough savings? Open an FHSA immediately (if you are a first-time buyer) to start building contribution room and saving tax-efficiently. We cover this in detail in the next module.
3. Too much debt? Use the avalanche method (pay off highest-interest debt first) or the snowball method (pay off smallest balances first for psychological momentum). Aim to eliminate credit card debt entirely before applying for a mortgage.
4. Unstable employment? Focus on building job stability and documenting your income for at least 12 to 24 months before applying.

The goal is not perfection — it is preparation. A well-prepared buyer gets better rates, faces fewer surprises, and sleeps better at night knowing they made a sound financial decision.

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Next: Buying with a Partner, Family, or Friend