Financing

How Much Can You Afford?

Whether you have spent years saving and preparing to buy a home, or you still aren't sure if it is something you can even dream of, the questions surrounding a first-time home purchase can feel endless. Once you have determined the type of property you would like to purchase, you need to determine what you can afford. The two main factors that affect your purchase price are the size of your down payment and your total household or family income.

Affordability Rules

1. The first affordability rule is that your monthly housing cost should not exceed 32% of your gross monthly income. Housing costs include monthly mortgage payments, taxes and utilities (and half of monthly condominium fees)

2. The second affordability rule is that your total debts (credit cards, car payments, lease payments, etc.) shouldn't exceed 40% of your total monthly income.

When you determine what your monthly payment maximum is, and combine it with your downpayment, you can then determine what your purchase price should be. Remember to include your closing costs when determining the size of your downpayment. Also remember that you will require an initial deposit when your offer is accepted and a deposit increase upon subject removal. No one likes unpleasant surprises.