‘What Mortgage Can I Afford’ – Buying Within Your Means
One of the most important questions you need to ask yourself when you are getting ready to buy a new home is ‘what mortgage can I afford?’ It is easy to start looking at houses and have an idea in your head of what you want, but if you haven’t set a limit on price you may be disappointed. Even worse, if you put in an offer on a home that you fall in love with but can’t get the mortgage to fund the purchase, you will be out of luck.
Remember: be conservative. Don’t just calculate your current monthly payments and then estimate that any remaining income can be put towards a mortgage payment. This will only lead to you being ‘house poor,’ or worse, defaulting on your mortgage because of an inability to keep up with the monthly payments.
A great tool to take advantage of is a mortgage affordability calculator, even before heading to a mortgage broker. By inputting the interest rate, amortization period, down payment amount and your other estimated monthly payment responsibilities, an affordability calculator will calculate what maximum monthly payment you can afford.
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Your down payment will also impact your overall house price. The bigger the down payment, the higher you can go as far as total house price. On the other hand, having a bigger down payment and spending within your means can equal savings as far as monthly payments being reduced.
When you visit your mortgage broker, be honest. Make sure that you tell them exactly how your finances are utilized each month – your mortgage broker will help you establish a housing budget that allows you to remain within your means. A house is a huge purchase, and so being prepared for a significant financial change is crucial.