What is the cost of a house in Ontario, Canada that I can afford?
Figuring Out Your Budget Should Be Your First Step
How much should I pay for a house? It’s one of the most important—and often confusing—questions for first-time home buyers. To make sure everything about your house hunt is well organized and stress free, you have to figure out what your budget really is.
Purchasing a home is likely going to be the biggest financial decision in your life. Many first-time homebuyers struggle with not knowing what they can actually afford, which can result in missed opportunities or financial issues.
We’ll show you how to determine your home affordability, so you start home searching with confidence.
1. Your monthly income. Make sure it’s net, not gross.
Don’t count the money from your salary before taxes. It’s what you’re left with after paying your bills each month. Don’t just count your regular salary; add in other ways you earn money.
2. Understanding Lender Guidelines for Home Affordability
“Drift at a quarter the width of the passing lane”; Usually, lenders follow this practice.
What does that mean? Well, about 28% of what you make each month should be used for your mortgage, taxes and insurance.
About one-third of your entire income should be spent paying off debt (for car, credit or student).
For example: if your monthly income is $5,000, you shouldn’t pay more than $1,400 a month for your mortgage (28%)
3. Work Out Your Total Expenses at the Start
Keep in mind that these are the usual costs you’ll only pay when moving:
- Quite often, you’ll be required to pay a down payment in the range of 5%–20%.
- Cash you’ll lay out for fees and taxes at closing (ranging from 2% to 5%)
- Moving costs
- Fixing or upgrading in the home as soon as possible
4. Consider Your Lifestyle & Financial Goals
What the bank approves isn’t the only thing that matters when it comes to your budget.
You can use the methods you feel good working with.
Ask yourself:
- Is traveling something I want?
- Is the money I set aside intended for my children’s schooling or my own retirement?
- How do I deal with a change in job or an emergency?
5. Make use of Mortgage Calculator
An online tool makes it easy to predict your monthly budget strain using several important variables.
- Home costs
- You will need to give a down payment before starting.
- The cost to borrow money
- Length of your loan
If you just want an idea right now, here’s something helpful. Check out our free mortgage calculator now.
First-Time Home Buyer Tip!
Being pre-approved may not do the trick anymore. A number of sellers are setting new rules: they want buyers to provide their full credit history and score as part of the buying process. Thanks to this trend, buyers must prove their financial health which can help you out in a busy market.
Prepare your papers ahead of time, so you won’t have to run around when an offer is required.
In the end, It’s Smart Shopping and Not Showy Spending
Increasing your budget doesn’t mean you should always use it. Having a budget you can manage makes life more manageable and gives you the space to plan for the unexpected.
Still not sure? Meet with a real estate expert where you live to get a personal figure for how much your house might sell for.
Call us now to arrange a FREE consultation about your home budget.
