| There are several things to consider when setting your
budget.
The Mortgage
Before you start to look for your home it is advisable to get pre-approved
for a mortgage by your Financial Institution or by a Mortgage Broker,
then you will know exactly how much you can borrow to put towards your
new home.
The lender considers your debt-to-income ratio, which is a comparison
of your gross (pre-tax) income to housing and non-housing expenses that
you have.
Non-housing expenses include such long-term debts as car or student loan
payments, alimony, or child support etc.
Monthly mortgage payments should normally be no more than 30% of gross
income, while the mortgage payment, combined with non-housing expenses,
should not total more than 41% of income.
The lender also considers cash available for down payment and closing
costs, credit history, etc. when determining your maximum loan amount.
Down Payment
Down payments can be as low as zero with some lenders, but to avoid CHMC
insurance on your mortgage 25% is required. This does not mean you cannot
buy a home if you do not have this amount, but it does mean in most cases
you will be required to meet the cost of an insurance premium to cover
this amount. Your mortgage broker or financial institution will advise
you of this.
Closing Costs
These cannot be determined exactly but you can calculate a ballpark figure
for such items as Land Transfer Tax and Lawyers
Costs to allow you to set a reasonable budget. It is safer to err
on the side of caution in this situation.
Proceeds From the Sale of Your Existing Home
If you have already sold your previous home you will be able to calculate
the exact amount you will have. Otherwise work with figures that take
into account approximately 97% of asking price and assume the maximum
real estate commission and lawyers costs.
Taking all of this into account and erring on the side of caution will
give you a figure that you can afford to find your dream home. I can help
you prepare this and then move you to the next stage of Finding
That Dream Home |
