Are Your Finances in Order?

Preparedness is Key

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 satisfactory to maintain your lifestyle.

How much can you afford?

Before beginning the process of shopping for a home it’s important to know exactly how much the bank thinks you can afford. 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.

Affordability Rule #1 Gross Debt Service (GDS)

The fisr rule is that your monthly housing costs shouldn’t 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.

The Next Steps

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 doesn’t 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