Mortgage - How much can you afford

So, you have decided to buy a house. Congratulations! But how much money can you afford to borrow to buy the house? Three major factors are involved in this estimate: your long-term debts (if any), your total monthly income before taxes, and the cash you will have at hand for the closing costs and downpayment.

With regard to income (assets), there are many sources to add to your employment income. Your net income as a self-employed person, together with commissions and overtime bonuses count. Child support, alimony, and workman’s compensations are also considered income. Other sources are rental income after deduction of debt payments and deducting expenses, as well as income from partnerships, trusts, etc. Your debt will also be taken into consideration by the mortgage lender. Debt includes revolving accounts, real estate loans, as well as installment loans such as tuition loans, car loans, and bank loans. It is best to pay off as many of your debts as possible before applying for a mortgage.

Your bank or lending institution will expect that you have sufficient money for the down payment. This can be as much as twenty percent of the asking price for the property. The following funding sources can contribute to making the down payment: bonds and stocks, mutual funds, savings, etc.

Many people look into no-money-down loans, but if you choose this option, it is likely that you lose the house. Home buyers who did not have financial discipline to save money for the down payment stand higher chance of getting foreclosed on. Moreover, the less money you are able to put down, the higher the mortgage payments. Another problem with no-money-down loans is that you may be required to take mortgage insurance. This is also true for high-ratio mortgages with a down payment of less than 20 percent. In these cases, you are required by law to insure your mortgage if you applied in Canada. Of course, if you can afford to make a down payment of 20 percent or more, you should do that. You will qualify for a larger loan and what is better, you will obtain it at a better interest rate. However, once you make the down payment, it will not be easy to get it back out. That should be kept in mind if you plan on depleting your emergency savings.

A mortgage calculator is a handy tool when it comes to calculating the amount of your mortgage as well as how much you can really afford. As an input data, you should enter the amount and term of your mortgage, the mortgage start date, and the interest rate. The mortgage calculator will show the amount of your mortgage payments. As an optional feature, you can include additional monthly or annual payments you have to make.

Other mortgage calculators you can look into are the maximum mortgage calculator, the renting vs. buying calculator, or the mortgage variable isolator calculator. With the renting vs. buying calculator, you have the opportunity to compare whether it will be more economical to buy or rent. The comparison is based on various factors such as monthly payment and down payment, interest rate and yearly increase in home value, as well as your monthly rate. Choosing the years of comparison will give you a good estimate.