What Can You Afford to Pay for a Home?
by Mitch P. Truax
The time to decide how much you can afford to pay for a home is before you start to shop for one. This will save you untold hours looking at houses that you should not really be in the market for in the first place.
Understanding how the process of how a bank knows what you can afford to pay for a home will make it easier for you. Your total expenses will also be considerd, since they will have an effect on how much income you have leftover to pay your mortgage each month.
To do this, banks use certain ratios that tell them what you are able to afford, ratios calculated on income, expenses, debt, down payment and closing costs.
You can do these calculations yourself, or you can enlist the aid of a mortgage broker to do them for you.
One of the biggest stumbling blocks to home ownership is the down payment. Many people new are not able to put aside some savings to accumulate the required funds for a decent down payment. We can forget about no down payment mortgages now that the credit crunch in the real estate market has forced banks to be stricter about their terms.
A minimum of a 10% deposit will typically be demanded. If the home you are looking for is in the range of $200,000, you will need $20,000 for a down payment and additional funds for closing costs mortgage broker in calgary. Lenders will be happy to give you an estimate of the closing costs.
So let us figure that you need $25,000 to start shopping for a house. Now you have to be concerned about what you can afford for a monthly mortgage. There are mortgage affordability calculators on the net, or you can ask a mortgage consultant to do these calculations for you.
As a rule, lenders do not want to see the entire cost of housing (mortgage, taxes and insurance) higher than 25% of your income edmonton mortgage broker. Banks will examine this closely, especially if you have high credit card debt. The bank expects you to use the remainsafter the 25% for food, clothing, utilities, education and savings, not high monthly payments on a card. If you have high credit card debt that has to be paid, that will be deducted from your income when the bank is calculating what you can afford.
Without these complications, you can count that a monthly income of $6,000 means that you can afford to pay $1,500 in mortgage, taxes and insurance. Now you have some figures in hand to start looking for a home.
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