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.
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/
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/
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