A Realtors insight

October 31, 2006-10-31

What can I afford? This is a great, first question. If you can spend some time researching this avenue right off the bat, it will make the whole process of purchasing a property much more enjoyable. There are many things to consider when looking into how much you can afford. I will give you some guidelines as well as some information that will help you figure out the approximate amount you can afford. Of coarse consulting your financial institution or a mortgage broker is a wise decision before you go out looking for the property of your dreams.

The Down-Payment:

You will usually be required to make a 5 to 10% down-payment of the purchase price of the property. However, lending policies do vary. The more of a down-payment you can make the better as the less interest you will pay and the lower your monthly payments will be. Step one; figure out how much of a down-payment you can make.

Deposit:

Usually you are required to make a deposit after the acceptance of an offer. Consult with your Realtor as to how much of a deposit should be made. Generally this deposit will form part of your down-payment.

Borrowed Money:

When you consider how much you will need to borrow, there are a couple of points you should be prepared for. When you apply for a mortgage through a Broker or a financial institution they will apply standard tests, they will ask you questions such as family current income as well as current debts and they will do a thorough credit check, in order to be sure you can repay the loan. Please be honest with the information you provide to your Broker/Financial Institution so they can help you and keep your best interests in mind.

If you would like to do a couple of exercises on your own to see if you may qualify for a mortgage, the following information will help you determine where you may stand in the event you apply for a mortgage.

How Much Can You Afford to Pay in Mortgage Payments?

Remember step one, figure out your down-payment.

Now; based on your family income allow nor more than 30% of your gross monthly income (before deductions). This is a test that Financial institutions use and is known to us as Gross Debt Service Ratio.

Complete the following calculation to determine the approximate amount you will be able to spend for a mortgage payment, property taxes and if necessary 50% of strata maintenance fees. Please keep in mind some lenders require you to include heating costs.

Your gross monthly income$______________________

Spouses? gross monthly income$______________________

Other income (monthly)$______________________

Total Monthly Income$______________________

Multiply the Total line above by 30% to calculate your:

Total monthly maximum housing payment. $________________

We are now ready to proceed to the next calculation;

Your other Financial Obligations:

Gather all of your debts, debts such as car loans, credit card payments, monthly insurance premiums, any payment that you are required to pay monthly. This next test is referred to as your Total Debt Service Ratio. This will give you a clear indication as to the maximum mortgage loan for which you can qualify.

Complete the following calculation. Your Monthly Housing Payment as calculated previously $______________________

You?re Monthly Debt Payments

(car, credit cards etc.)

$______________________

Total Monthly Payment$______________________

The total of your monthly housing payment added to your other monthly debt payment should not exceed 40% of your gross monthly income.

Please remember this is an exercise that you may conduct yourself, but I encourage you to consult a mortgage broker or your financial institution before you go out on the search for a property. The experts in the field of mortgages will let you know exactly the amount of a mortgage loan you qualify for and send you on your way to look for a property in your specific price range. This procedure is called a pre-approval mortgage loan, which means you have successfully gone through all of the steps to conclude your maximum mortgage loan.

Last Step:

Before the Financial institution will sign on the dotted line to release the mortgage they will more than likely want to conduct an appraisal of your selected property. This appraisal is done by a professional who will put a market value on the property; the lender wants to make sure that the property you selected is valued equally or higher than you have negotiated the purchase price to be. If for instance the appraisal value comes in lower that the negotiated purchase price the lender will not mortgage or lend the difference it would be up to you to come up with the difference. If you can not come up with the difference financing from the lender will not be granted.

There you have it a brief overview of How much can I afford?

Remember if you have any questions regarding this article or any other or if you would like me to answer a question regarding Real Estate please do not hesitate to ask, please submit your question in writing to Brenda Banham Dawson Creek Realty Ltd.: e-mail bbanham@neonet.bc.ca fax 250-242-3256 or mail Box 1769 Tumbler Ridge, BC V0C 2W0.

Remember Brenda Banham is located right here in Tumbler Ridge. Till next week enjoy the sun and snow!