Affording a Home
 

Your "Dream Home" can quickly become a nightmare when you end up "House Poor", with your mortgage eating up all your money and little left over for enjoyment.

When buying a home, you need to be practical and realistic.  Over-extending yourself financially is the quickest way to destroy the excitement of owning your own home.


 

What can you afford ?
 

Setting a maximum price range is more important than simply establishing an upper price limit because unanticipated costs could push you into the "House Poor" danger zone.  To determine your "affordability" price range, you must calculate 2 amounts

1. The amount of cash you can put towards the purchase (the downpayment)
2. The maximum amount of loan (mortgage) you can comfortably carry


Your Downpayment

 

Put down as much of your own money as possible.  Over the long-term it will really pay off.

You need to keep a money on hand for such things as Land Transfer Tax, legal fees, mortgage arrangements, moving expenses, new furnishings, appliances and probably some unexpected things as well.

How Much You can Afford to Borrow ?

 

The first step towards establishing a maximum mortgage limit is to calculate a monthly payment you can afford.  Financial institutions do this by calculating your Debt-Service-Ratio.

To calculate your debt service ratio, list all of your loans ( car payments, personal loan payments and credit card payments )
.

 

The sum of these Loan Payments + your Mortgage payment ( including principal, interest and taxes ) should not exceed approx. 43% of your gross income. Mortgage payment plus taxes should not exceed approx. 30% of your gross income.

Interest rates and other variables

Higher Interest Rates = Less House         Lower Rates = More House

 


Discuss your mortgage options with your Financial Institution / Mortgage Broker or Realtor

 

 

Establish your limits and stick to them

 

 

 

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