Today's economy may have you wondering if now is the right time to buy your first home. With a more moderate real estate market and interest rates at all-time lows, many find that now is the ideal time to make their home ownership dreams a reality.

Many people are surprised to learn that the costs of owning a home can be substantially lower or comparable to those of renting. There are also many financing options and wide variety of housing choices that can make owning a home more feasible. The Ontario Real Estate Association offers the following information on buying your first home.

Before you start searching for a home, it's important to determine how much you can spend. You may learn that the modest home you can afford is a far stretch from your "dream home," but it will be a start and will require far less cash as a down payment.

A Realtor can help you identify what you want and take you to homes and neighbourhoods that reflect your lifestyle, needs and price range. S/he will also help you understand property financing, taxes, insurance and the steps you will have to take as a first-time buyer to complete a real estate transaction.

The vast majority of homebuyers lack the funds required to buy a home without assistance from a bank or other lender. Most buyers will need to arrange a mortgage. Before a lender will give you a mortgage, they will need to determine how much you can afford to pay. They will look at how much you need upfront, including your down payment and other costs such as legal fees, inspection fees and taxes. They will also look at the ongoing costs of paying back the mortgage, along with monthly costs for utilities, maintenance, insurance and annual property taxes.

Most lenders will not permit a borrower to take on a debt load the borrower can't carry. That's why reputable lenders "qualify" potential borrowers before lending mortgages.

The general rule is that your monthly housing expenses (mortgage payment and taxes) plus condominium fee, if applicable, should not exceed 30% of your monthly gross family income. This is called your Gross Debt Service (GDS) ratio.

Lenders also use a second calculation called Total Debt Service (TDS) ratio. Generally speaking, no more than 40% of your gross family income can be used when calculating the amount you can afford to pay for mortgage payments and taxes plus other fixed monthly expenses. These other fixed costs are your ongoing commitments and can include auto, student or personal loans and credit card payments.

Saving a down payment

The hardest part about buying a home for most first-time buyers is saving the down payment. You may have the ability to keep up with the monthly financial obligation (mortgage payment, insurance, utilities, property taxes, maintenance), but finding the down payment may be a problem.

Once you decide what you can afford and find the home you want in the right neighbourhood at the right price, here are some of the sources you can tap into for a down payment. Registered Retirement Savings Plan (RRSP): you can withdraw $20,000 per individual ($40,000 per couple) without any tax penalty as long as you pay the amount back within 15 years.

Loans or gifts from your family or relatives.

Mortgage insurance: Until recently, to qualify for a conventional mortgage, a buyer needed to put down in cash at least 25% of the purchase price. But a new law that came into effect last year lowered the level to 20%. However, a buyer can still put down less than 20% if s/he qualifies for a high-ratio mortgage. By law, this type of mortgage must be insured against default in payment.

The cost of the mortgage insurance depends on the value of the house and the size of the loan. While mortgage insurance doesn't help you come up with the down payment, it means you don't need quite as much to get started. Most mortgage insurance companies offer a 5%-down option and insures the remaining 95% of the lending value; the premium can be added to the mortgage or paid on a monthly basis.

A Realtor can help you understand how this program works and ensure that you get the maximum benefit possible. He or she can also help guide you through the entire home-buying process and explore all your options to get you into your first home sooner. - Courtesy of the Ontario Real Estate Association