Affordability

The first step in the real estate process is to find out what you can afford. We will work with you and refer you to one of our preferred lenders right away to be pre-approved and get real numbers as to what closing will cost and what your payment will be. This is the next step after choosing the right REALTOR.

There are two different considerations that come into play here:

• Financial Assets & Resources
• Budget & Personal Lifestyle

Your financial resources will determine what you can literally afford, while your personal lifestyle will determine what you can realistically afford while still maintaining a decent quality of life.

Purchasing a home requires a down payment of at least 3.5% of the purchase price (FHA), while having at least 20% is recommended (but not always realistic). There are a few different ways that you can come up with a down payment, such as savings, RRSPs or cash gifts–the only catch is that the money can’t be borrowed.

In addition to the down payment, there are a number of additional one-time costs such as lawyers fees, property inspection and other buying related costs that will be required. You should have an additional chunk of money set aside for these expenses.

When determining how much you can afford, you’ll need to look at your own assets and resources. Once you have your down payment sorted out, you’ll need to figure out what amount you’ll be approved for.

The easiest way to do this is to visit a mortgage broker to get pre-approval. The mortgage broker will collect your income statements, debts and credit score info, and then will find out what borrowing amount you would be approved for.

But just because you can afford a certain pricepoint, doesn’t mean you should! We’ve all heard the term “house poor”, which refers to buyers who have exhausted their budget on their home. They have a beautiful house but can’t afford to go out and have fun–when the novelty of the new house wears off, they’re left miserable or in unmanageable debt.

The way to avoid being house poor is to find out what you can realistically afford, and purchase a home based on that figure. Determining this amount comes down to basic budget skills.

First, determine all your monthly and irregular expenses and write them down. This is absolutely anything you spend money on: rent, credit card debt, loans, car insurance, childcare, food, medical expenses, etc.

Next, break down what these cost on a monthly basis and compare them to your monthly income. Remember that your rent will become your mortgage, but most other expenses will remain the same. It’s unrealistic to expect to cut your food costs by 20% if you haven’t done it before.

Once you have a budget worked out, you’ll have a much better understanding of what monthly mortgage payments you can realistically afford.

• Mortgage Payments
• Home Insurance
• Property Taxes
• Utilities (Water, Gas & Electric)
• Maintenance