Can You Afford To Buy A Home?
With interest rates at historic lows, many people are considering buying a home.
The first thing any prospective homebuyer needs to do is determine whether they can afford to buy the home they want.
Many people believe they have to save a large down payment. Thanks to mortgage insurance, however, you can buy a home with as little as a 5% down payment. Some banks even offer 0% down options!
A down payment of 25% or more will qualify you for a conventional mortgage. If it is less than 25%, the mortgage must be insured with a mortgage insurance company, such as CMHC or GEMI.
Mortgage insurance serves homebuyers by helping them achieve homeownership through low down payment mortgages. Because lenders are protected by mortgage insurance, they are able to offer loans to homebuyers with as little as 5% of the purchase price as a down payment at competitive rates. This insurance benefits lenders and investors while helping homebuyers.
Once you’ve determined how much you can put toward a down payment, it’s time to approach a lending institution for a mortgage.
Most mortgage lenders look at five factors when determining whether you qualify for a mortgage loan: your income, debts, employment and credit history and value of the property you want to buy.
One of the first questions a lender will consider is how much of your total income you’ll be spending on housing. This helps the lender decide whether you can comfortably afford to buy a home.
A lender will then look at your debts, which generally include house payments as well as payments on all loans, charge cards, car payments, etc. that you make each month.
A history of steady employment, usually with the same job for several years, helps you to qualify. But a short history in your current job shouldn’t prevent you from getting a loan, as long as there have been no gaps in income over the last two years.
Good credit is very important in qualifying for a loan. Make sure you have maintained all of your payments and limit the number of credit cards you have to no more than three. The lender will also want to know what the house is worth and the price you plan to pay.
The size of your down payment affects the amount of your monthly mortgage payments. A smaller down payment will mean your monthly mortgage payments will be higher, but it may allow you to buy sooner rather than later.
Mortgage payments for principal, interest and taxes generally should not exceed 30% of your gross monthly income. Simply multiply your gross monthly income by 0.30 to determine your maximum monthly payments. If your gross monthly income is $4,000, the most you can afford is $4,000 x 0.30 = $1,200.00 a month to cover mortgage payments plus property taxes.
You should also remember that there are other expenses over and above your mortgage payments. These include the land transfer tax and legal fees to close the purchase of your home. Plus other monthly expenses such as condominium fees, heat, hydro, water, property tax, insurance and household maintenance.
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Contact the Jeffrey Team for more information
