Before you start the search for your new home, it would be very wise to know just how much of a mortgage you’ll be able to comfortably handle. There are many ways to decipher this, including using a mortgage calculator tool, and by paying various lenders a visit.
For the most part, lenders will look at your overall budget and what you have to spare figuring in mortgage payments. Other factors will be taken into consideration, such as insurance, upkeep costs, and taxes. As a rule of thumb, conventional lenders don’t want your monthly payments to be more than between 28 to 44 per cent of your total income. There may be a little leeway if your credit is excellent.
How will lenders figure out what you can afford?
One method lenders will use is to look at your total income every month along with your total housing costs and how those figures compare. What you should do is take with you the gross amount you get every month. That sum will be multiplied by .28. This is the figure that will most likely be used to calculate what your total housing costs will be.
A second way to calculate what you’re likely to be able to afford mortgage-wise is by you writing down all your expected payments a year into the future — things like car payments, outstanding loans, credit card payments, etc. That total should be multiplied by .35. Your total debt per month shouldn’t exceed that number. Using a mortgage calculator tool will help you figure out these amounts.
Other things to take into account
Your credit rating plays a large part in your ability to be able to secure a mortgage. Here are some questions your lender might ask:
- Is your credit score good?
- Do you have a recent bankruptcy, payments that are late or have debts in collections? If you do you should have a good explanation.
- Are your monthly payments excessive?
- Do you have maxed out credit cards?
The answers you provide to these questions can either make or break a mortgage deal. So, as you can see, having a good credit history is paramount to getting a mortgage. Take the time to build your credit. Do things like applying for an RRSP, which will ultimately create a good down payment for you when it comes time for you to talk about getting a mortgage.