Are your finances in order?

Do you qualify for a mortgage?

Contact a mortgage broker for an assessment of your situation. Brokers are independent business owners who work with all the banks. They get paid by the lender if you qualify for a mortgage and will often make an extra effort if your application is marginal.

If your profile does not fit the two affordability rules there are steps you can take to improve your buying ability.

  • Consider a smaller home
  • Pay off some debt
  • Save a larger down payment
  • Look at your assets to see if you can sell something
  • Look at your expenses and see if you can make improvements

Affordability is a formula

How much can you afford?

Before beginning the process of shopping for a home it is important to know how much the bank will loan you and under what conditions. They will take into consideration a number of factors including:

  • Credit rating
  • Income source and type
  • Stability
  • Down payment saved
  • Mortgage payments
  • Maintenance, condo fees, etc.

One of the best ways to test your financial readiness is to calculate your monthly expenses required to buy a home and live within that budget for six months. Set aside the money in a savings account and see if the remainder of your income is enough to maintain your lifestyle.

Affordability Rule #1 Gross Debt Service (GDS)

The first rule is that your monthly housing costs should not be more than 32% of your gross monthly income. Housing costs include mortgages, taxes, and heating.

Affordability Rule #2 Total Debt Service (TDR)

The second rule is that your total combined monthly debt payments cannot be more than 40% of your gross monthly income. This includes credit card minimum payments, car payments, etc.