Q. How do I know if I am ready for home ownership? What are the basic criteria or requirements to determine how much of a mortgage payment can I afford?
A: While owning a home is everyone’s dream, understanding clearly the financial implications of owning a mortgage can help eliminate unnecessary surprises and disappointment. An Accredited Mortgage Professional is trained to help identify your financial capacity based on income and liability levels. Your financial capacity will determine the maximum allowable mortgage you are qualified for.
To estimate how much you can afford for your monthly mortgage payment, calculate 35% of your gross monthly income. This is the maximum amount that you can allocate towards your total housing costs including the mortgage payment, property taxes, heating costs, and if applicable 50% of the estimated monthly condominium maintenance fees.
Second, calculate 42% of your gross monthly income. This is the maximum amount that you can allocate towards your total housing costs plus all of your monthly debt payments, including car loans and leases, credit cards, personal loans, and lines-of-credit. These calculations are based on most lenders’ guidelines, however, there is some variation relative to lender and product type.
In addition to considering what the maximum payment lenders will consider, make sure you calculate how much you think you can afford. If the payment amount you are comfortable with is less than 35% of your income you may want to settle for the lower amount rather than stretch yourself financially.
For a free consultation, please contact me.
Michael Sato | 604.779.1517