If you’re like most people, you have an image of your “Dream Home” tucked somewhere in your mind. But can you afford it? A house is too expensive to be an “impulse” buy. But frequently, in the heat of the search for your dream, your impulses can run away with you. “Yes, I really do need a pool.” “A nanny’s apartment is definitely necessary.” “Six bedrooms—great!” Your “dream home” becomes a nightmare when you end up “house poor,” with most of your money going to pay for the mortgage 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. I can help you find the home of your dreams. In the meantime, here are some ways to determine your “affordability quotient”…
 
What You Can Afford to Buy
 
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 two amounts: the amount of cash you can afford to put towards the purchase (the down payment) and the maximum amount of loan (mortgage) you can comfortably carry.
 
About the Down Payment
 
A mortgage covers the difference between the purchase price and your down payment. The larger the down payment, the less you have to borrow, the smaller your monthly mortgage payment, the lower your cost of interest over the term of the mortgage, and the lower the CMHC fee. So it usually makes sense to put down as much of your own money as possible. Having said that, it is possible to purchase a home with NO DOWNPAYMENT, or to use your RRSP savings towards your down payment. You can discuss these options with myself or your Mortgage Representative.
 
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. A Mortgage Representative will do this by calculating your debt-service ratio.
To calculate your debt-service ratio, list all your loans (car, personal loans, monthly credit card balances). The sum of these loan payments and your mortgage payment (including principal, interest and taxes) should not exceed approximately 40 percent of your gross income. The mortgage payment and taxes should not exceed approximately 30 percent of your gross income.
 
Interest Rates and Other Variables
 
The size of the mortgage you can arrange, based on payments you can afford, depends on interest rates. The lower the rates, the larger the possible mortgage and the more affordable housing is.
But there are other mortgage terms to consider, as well. How open is the mortgage? Would prepayment be allowed? Is the mortgage portable? 
Discuss your mortgage options with me, or your Mortgage Rep. Establish a limit – and stick to it.



 

 

 

 

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