Mortgage Stress Test: How Much Can You Afford?


People who can afford their mortgage payments but cannot afford anything else are called House Poor. You don’t want to find yourself in this situation. Buying a home that you can't afford will place significant restraints on your financial life. Here are some things that can assist you in finding a house that you can realistically afford.

The first affordability rule, as set out by the Canada Mortgage and Housing Corporation (CMHC), is that your monthly housing costs that include the mortgage principal and interest, taxes and heating expenses (P.I.T.H.) should not exceed 32% of your gross household monthly income. For condominiums, P.I.T.H. also includes half of your monthly condominium fees. The sum of these housing costs as a percentage of your gross monthly income is your GDS ratio.

What is your GDS ratio and can you pass the mortgage stress test? Use this mortgage calculator, no more than 30% to 32% of your gross annual income should go to "mortgage expenses"-principal, interest, property taxes and heating costs (plus fees for condominium maintenance). Total Debt Service (TDS) Ratio You can find this ratio by using debt to income calculator or by merely dividing your projected monthly mortgage payments by your gross monthly income.

Also, look at your own ratios. Do you need to allocate your money elsewhere besides your mortgage? What percentage of your income do you feel comfortable spending on your mortgage?

What's coming up in your life? Will you be starting a new career? Will you plan on growing your family? Unless you anticipate any sizable changes to your life or finances, then you might be able to afford a more substantial mortgage payment. If you do have life plans that are going to impact your finances in the future than you should get a more manageable mortgage payment.

Make sure that you have an emergency fund that can cover all of your essential expenses while you get back on your feet. An emergency fund will need to cover at least three to six months of your living expenses.

Your total monthly expenses will influence how much of a home that you are able to afford. Calculate all of your costs, such as groceries, gas, dining out, utilities, car expenses and more. Do not forget to include line-items for travel, holidays and other annual costs. Now that you have added these numbers start looking at how much room you have left. You need to leave a buffer for any other costs that might creep up.

If you are looking for a KW REALTOR®  to help you with finding a home within your budget, contact Mike Bolger. I can also help connect you with a mortgage professional to get you a mortgage that works for you.

Mike Bolger, Sales Rep
Chestnut Park Realty Southwestern Ontario Ltd.
The Shops at Waterloo Town Square
75 King Street South, Unit 50 
Waterloo, ON N2J 1P2
+1 (519) 616-2656 
http://www.mikebolger.ca/
Location: Waterloo, ON, Canada

Comments

Post a Comment

Popular posts from this blog

Crucial Questions to Ask Before Buying a Home

Image
You have established the numbers of what you can afford as you look for a new home. You have researched the neighborhoods that you like, and now you are ready to work with a REALTOR®. But which one? There are tons of them out there in your region. Now is the ideal to ask lots of question to determine if they are the right professional REALTOR® for you. As soon this process is complete, you can now concentrate on your search. Now you found a few properties that you like; you will want to ask your REALTOR® to ask these six questions to the seller's agent.  Why are the owners selling? This question will give you facts on two things: significant flaws or if someone is moving for a job or going overseas.  This information is necessary to find out if they are motivated to sell quickly. Some REALTOR®s might be unwilling to share this information because it's personal for their client. If you get an answer that makes sense,  move forward to the next questions.  
Read more

When Buying a Home, Look Out For Foundation Issues

Image
When buying for a house it can be both enjoyable and difficult. The plan is to locate a place that is in exceptional condition and fits your living needs. One of the most significant concerns for many is that the property that you purchase is structurally sound. Check out these recommendations about how to spot probable problems when viewing homes with your real estate agent. Some REALTOR®s offer a VIP Buyer's Program . Watch out for these red flags When heading out to open houses and showings, watch out for the following signs of foundation problems. If you’re looking at properties built more than ten years ago, pay extra attention to damaged foundations. Outside: What to look out for • Horizontal cracks • Stair-step cracking • Gaps around windows and doors • Sunken stairs or porch Inside: What to look out for • Misaligned windows • Hard to open doors and windows • Drywall cracks • Cracked tiles • Ceiling cracks • Separation between walls • Separation be
Read more

Increase Your Chances of an Offer With These Staging Recommendations

Image
These days, selling your property takes more than finding a real estate agent and placing a “For Sale” sign in the front yard. Having your residence in order is the first step to an effective offer. The key is to give prospective buyers the chance to envision their “stuff” and family living in the home. It's a good idea to show your home in the best possible light. Here are some recommendations to jazz up your home staging to enhance your chances of an offer. Remove Your Belongings You could be attached to your stuff. However, the first rule is to clean up. Begin by clearing out the unnecessary stuff and pack it all away. If you do not, it can restrict new buyers from visualizing the house as their own. Pack away personal items like family photos  Hide toiletries, clothing, jewelry and accessories Remove excessive clutter Make sure the bathrooms are spotless Invest in covered containers for under the bed or in the closet Make Your Rooms Appear Even bigger You need
Read more