Buying a home is an exciting time but you need to take a step back and make sure it’s the right move and that you can finance everything you need to over the long term. Asking yourself: “What mortgage can I afford?” is an important part of the process you need to get right. Remember, there are no do-overs after you’ve signed on the dotted line.
Taking a look at the big picture is necessary. Remember that lenders will look at what you current owe before they decide on what amount they will lend you. There are some good home affordability calculators that you can use as aids to help you make the right decision. However, every prospective homeowner needs to have a good understanding of what they’re getting into.
Here’s a few other factors you should consider:
- That new or older homes will need repairs and maintenance depending on the age and previous upkeep. There’s usually a new roof or windows that need to be looked at in that quaint older house and items like upgrades for improved air quality in the newer ones. Budgeting for around one percent of the actual asking price should leave you safe.
- Expenses to income ratios are important. Although lenders use these to calculate how much money, if any, they will lend you, having an idea how to wrangle these numbers yourself is good. Calculate this all important number yourself by adding up all of your monthly bills including housing and utilities and dividing by your gross income. Here in Canada, an income to debt ratio of 36% or under is good—above 50% spells financial trouble.
There are more than a few pieces to the puzzle when you’re asking, “What mortgage can I afford?” and you need to take some time here to get the equation right.
