Know Your Financial Limits
Before you look for a house, you should know how much of a mortgage you can afford to pay. To determine that, calculate your gross income and then add your current monthly debts such as credit card payments, car loans, and other costs. For example, if your monthly income is $2,000 and your credit card payments, car payments and payroll taxes are $1,200, that leaves $1,300 for you to save toward your deposit.
formula for simple incomes:
Gross income = highest income plus monthly expenses minus tax refunds
In other words, it amounts to $2,000 + $1,200 (credit card payments + car payments + payroll taxes).
How much of a mortgage can you pay?
There are three factors that determine how much of a mortgage you can afford to pay. You’ll need to consider the size of the down payment you plan to put down, the amount of your monthly payments, and the amount of your monthly payments.
Down Payment
The larger the down payment you can make, the more credit lenders will trust you and the more likely you are to get a good mortgage rate. Unfortunately there are no firm statistics available on how much of a down payment affects approval probability, so it’s impossible to estimate it. On average, however, about a 20% down payment lowers interest rates by about 0.25 percentage points.
For example, if your purchase price is $350,000 and you plan to put $20,000 down, your mortgage lender will expect that your monthly payments (Principle and Interest with Property Taxes added) will be about $3,000. If your down payment is even $10,000, your monthly payments will be reduced to about $1,750.
Mortgage Insurance
Another major consideration is how much of a monthly payment you can afford to pay. If you expect the property tax bill to be $ wed, your monthly payment should be about $cape. If the PITI your monthly payment winds up being $2,000, your monthly payment will be about $3,000 unless the seller pays the buyer P.I.T.I. (Private Mortgage Insurance).
You may feel comfortable with monthly payments of $3,000. But is it permanent? Will you be able to afford a monthly payment of $3,000 plus tax Size Payment in the future? If not, it might be easier to buy that house.
Factors to Consider When Buying a House
The monthly payments on the housing loan are based on the total amount you pay monthly and the interest rate. There are other factors to take into consideration, however, when looking to buy your first home.
How is your credit? If you have no credit and, or have bad credit, it may be more difficult, and more costly, at some future time. You’ll probably still wind up paying more on the loan than someone with perfect credit.
we buy your house of loan you borrow? The payment will be higher than for a housing loan, because the interest rate is higher.
The length of the loan? A longer loan will have higher payments.
Online mortgage calculators can help you determine the payment you can afford.
A Realistic Summary of Homebuying
If you can afford the monthly payments and the down payment on the house, and you have minimal credit problems, do not let your Real Estate Agent pick the house because you have an emotional attachment to it. You may end up resenting it and having to walk away.
Be realistic, but savvy. Yes, of course, it would be nice, if someone gave you $1 million to buy the house, but it is not likely. So, work out your real budget as best you can, and then work the numbers. Not only did I get a house in Toronto, but the terms were very advantageous to me.
Did You Know? $5000 in tax credits are available to homebuyers in Toronto, on homes purchased between April 19, 2010 and March 31, 2010.