Buying a home is a very exciting venture for most people, especially if it is your first time. Driving around to look at neighbourhoods and house listings can be equally as exciting. Once you have the incentive to go ahead with your plan to purchase, there are many additional factors to consider before you are officially an owner.
The very first question you should ask yourself is how much mortgage you can afford. To get a realistic idea of what your housing expense ratio will be, a good formula to follow is to measure your basic monthly housing costs to your gross monthly income. This is the income you get before taxes and other deductions are removed from your pay. Any additional income you get each month will also count towards your gross amount, so if you have an online business that brings in a self-employed income or receive child support, alimony or any sort of pension, these can all be factored in what you will qualify for when it comes to getting a mortgage. This 'total income' is then weighed against all your total monthly obligations. Any payments you make include car payments, student loans and credit cards balances are added as a basic housing cost. This amount is then divided into your gross income. To make a bank happy, your total monthly payments (or debt) should not exceed 36 per cent.
To make shopping for a home easier, many agents prefer to work with clients who have been pre-qualified for their loan. This sets the limit for your home purchase and lets a seller know that you have the money and are serious when you do decide to make an offer. More times than not, being pre-qualified can work in your favour with it comes to buying power. Heartbreak is usually the result for buyers who find a home and do not qualify for the mortgage.
Once the process of pre-qualifying has been cleared, it is important to know how much money you will need to finish the deal. A down payment is only the beginning in the long list of fees that sit before you. A required down payment is between 5 per cent and 20 per cent. The higher the down payment, the better mortgage rates you can expect. Then there are fees for the home inspection, application fees, appraisal fees, title search and insurance, the first month's homeowners insurance, any over paid property taxes by the existing owners as well as closing costs. Each province will require different upfront fees.
To make your home buying dream come true, it is important to set your goals ahead of time to ensure you can save enough money when it comes time to go to the bank. In the meantime, it is equally important to make certain that your credit history is clean and in good standing.
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