When you are ready to begin looking at various houses to find your dream home, you need to prepare all of
the necessary materials to present to the lender. Your lender will tell you exactly what you can afford so
that you do not spend time looking at "too much" home. There are three key factors that you will need to
consider when determining how much home you can afford. These are 1.) the down payment, 2.) your
ability to qualify for a mortgage, and 3.) the closing costs associated with your transaction.
Down Payment Requirements:
Most loans today require a down payment of between 5% and 10% depending on the type and terms of the
loan. If you are able to come up with 20-25% down payment, you may be eligible to take advantage of
special fast-track programs and possibly eliminate mortgage insurance.
It is often thought that bigger is better when it comes to down payments. In many cases, this may be true.
However, the arithmetic will differ from case to case. A bigger down payment means smaller monthly
payments and lowers interest expense for as long as you remain with a mortgage. This can be an important
factor for many people. But if you can put your available funds to work for you so that they can earn more
than the interest rate on your loan, you could be dollars ahead with a smaller down payment. Also, a
smaller down payment may allow you to keep you extra cash liquid and available for an emergency.
Closing Costs:
Don't forget to think ahead carefully. In addition to the down payment on your dream home, you will be
required to pay fees for loan processing and other closing costs. These fees must be paid in full in cash at
the time of the final settlement, unless you are able to include these in your financing. A detailed schedule
is included herein in the section detailing your closing.
Qualifying for the Mortgage:
Most lenders require that your monthly payment range between 30 to 32% of your gross monthly income.
Your mortgage payment to the lender includes four items....the PITI. These items are discussed in detail
on the page entitled, "Predicting Your Monthly Payment (The PITI)." Remember, when you buy a home
Investment Property all interest is tax deductible. Your total monthly PITI and all debts (from installments
to revolving charge accounts) should range between 35-40% of your gross monthly income. This is a
general rule of thumb, but other key factors specifically determine your ability for a home loan. These
factors are:
INCOME: History of employment, stability of income, potential for future earning, education, vocational
training and background, and any secondary income such as bonuses, commissions, child support, etc.
CREDIT REPORT: History of debt repayment, total outstanding debt and total available credit.
ASSETS: Cash on hand, other liquid assets such as savings, checking, CDs, stocks, RRSP's etc.
PROPERTY: The home you are buying must be appraised to determine that it has adequate value and is
marketable to ensure it will secure the loan.
it's best to Get Pre-Qualified for your Mortgage, then you'll know how much you can afford and the interest rate will be held in the event the mortgage rates go up before you draw down your mortgage on your new home in Victoria.
Call my favorite Mortgage broker Desiree Palfrey, (250) 213-3691 very friendly and knows where the best mortgages are to suite your needs.
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Very nice! Two things: 20% down, at least in the states, will always eliminate the requirement for mortgage insurance. With assets cash is king and worth 100%. 401(k) and IRA generally worth 75% and stocks generally 50% of the face value. Whole life is also considered an asset. Great post Fred!