12 Step Guide to Buying Your Home
Step #2 - Figure Out How Much You Can Afford
Buying or Selling real estate is probably the largest financial transaction you will make and there is much to think about. Please browse through the ilinks below so when you are ready to make that leap into home ownership you will be much better informed.
12-Step Guide to Buying Your Home in Mississauga
- Step 1: Make Sure You’re Ready to Buy
- Step 2: Figure Out How Much You Can Afford
- Step 3: Decide What You Want to Buy
- Step 4: Find a Realtor® that is Right for You
- Step 5: See What’s Out There
- Step 6: Sell Your Current Home
- Step 7: Add a Lawyer to Your Team
- Step 8: Make an Offer
- Step 9: Arrange a Mortgage
- Step 10: Find a Home Inspector
- Step 11: Close the Deal
- Step 12: Move In
Step 2: Figure Out How Much You Can Afford.
Before you start looking for your dream home, let’s find out how big you can dream. Knowing your true budget is the first and most important step in buying a home. Why?
A home is a big purchase.
It’s probably the most expensive thing you’ll ever buy, and there are lots of expenses you might not even know about. Everybody’s total costs are different, but it’s almost guaranteed you won’t have that much money saved up. Hopefully you have enough for a nice down payment. Here’s the reality in detail:
Cost of buying a home = One time costs (down payment, legal fees, inspection fees, taxes)
Monthly costs (mortgage, utilities, maintenance, insurance, property taxes)
Yes, you need a mortgage.
Step 9 is practically bursting with tips on how to arrange your mortgage but for now, we just need to figure out how much a bank will lend you.
How much will a bank lend you?
Well that depends on how much you can afford each month. This is determined using two lending principals.
The first lending principle is that your monthly housing cost should not exceed 32% of your gross monthly family income. This principle is known as the Gross Debt Service (GDS) ratio calculation.
The second lending principle used, the Total Debt Service (TDS ) ratio calculation, is that your monthly housing cost and payments on all of your other debts (including loans, credit card and lease payments) should not exceed 40% of your gros