The mathematical maximum
Lenders calculate maximum borrowing capacity using two ratios: GDS (housing costs / income, max 39%) and TDS (all debts / income, max 44%). Whichever ratio binds first sets your ceiling.
The math, simplified. Take your annual gross income. Multiply by 0.39 for GDS or 0.44 for TDS minus your monthly debts × 12. Divide by 12 to get your maximum monthly housing payment. From the housing payment, subtract estimated property tax (roughly $250/month per $100K of home price) and heating ($100/month). What's left is your maximum mortgage payment. Reverse the payment formula at the federal stress-test rate (your contract rate + 2%, minimum 5.25%) to get your maximum mortgage amount.
Add your down payment to that mortgage amount and you have your maximum purchase price. For most borrowers, this number ranges between 4-5x annual gross income for a salaried single applicant, or 4-5x combined income for a couple.
Working example
Couple with combined gross income of $140,000/year. No car loans, $5,000 of credit card balance ($150/month for TDS). $80,000 down payment available.
Monthly income: $11,667. GDS limit: $11,667 × 39% = $4,550 housing budget. TDS limit: $11,667 × 44% - $150 (CC debt) = $5,033 budget. GDS binds, so the housing budget is $4,550.
Subtract $400/month property tax (estimate for $700K home in Edmonton) and $100 heating: $4,050 available for mortgage payment. At a 6.39% stress-test rate over 25-year amortization, $4,050/month supports a mortgage of about $545,000. Add the $80,000 down payment: maximum purchase price ~$625,000.
Note: this is qualifying. Their actual contract rate (say 4.39%) means their monthly payment on a $545,000 mortgage would actually be about $2,990, not $4,050 — leaving substantial room in their budget for life. The stress test is conservative for a reason.
How much should you actually borrow?
The mathematical maximum tells you what you can borrow. What you should borrow depends on factors the lender doesn't measure: your savings discipline, future income trajectory, family plans, career stability, and how much of your life you want to dedicate to housing.
A common rule of thumb: housing costs (mortgage payment + tax + heat + condo fees + maintenance budget) should be 28-33% of gross income, comfortably below the 39% GDS lender ceiling. This leaves room for retirement savings, kids' RESPs, vacations, emergencies, and life.
The risk of maxing out at the lender ceiling: any negative shock — a layoff, an illness, a daycare bill, a furnace failure — pushes you into financial stress. Maxing out is the housing equivalent of using all your credit. It works until it doesn't.
Buy now or save longer?
Many first-time buyers struggle with the trade-off between buying now (with a smaller down payment and bigger mortgage) versus saving longer for a bigger down payment.
In appreciating markets, the math usually favors buying now. Each year of saving costs you (a) the rent you're paying, which is gone forever, and (b) the appreciation on the home you would have bought, which is gone forever. In Edmonton's market, average annual appreciation has been 3-5% historically — meaning a $500,000 home today could be $530,000-$550,000 next year. Saving an extra $25,000 of down payment in that year means buying $30,000-$50,000 worth of price appreciation.
In flat or declining markets, saving longer can make sense. Less appreciation means less opportunity cost; sometimes the bigger down payment helps more than it costs.
The honest read: don't optimize this question to the dollar. Buy when you have the financial capacity, the life stability, and a property you'd be happy living in for 5+ years. The market is volatile in the short term but reliably appreciating over the long term.