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Your "dream home" can
become a nightmare if you end up "house poor" with most
of your available cash going to pay for the mortgage.
Over-extending yourself financially will destroy
the excitement of owning your own home.
A RE/MAX professional can help you find the
home of your dreams and also assist you in evaluating mortgage options
and obtaining financing at the most prevailing rate. In the meantime,
here are some ways to help you determine how much you can afford.
Setting a maximum price range is of critical
importance. To determine your price range, you should calculate
two amounts.
a) The amount of cash you can afford to put towards
the purchase (the down payment)
b) The maximum amount of
loan mortgage you can comfortably carry.
The larger the down payment, the less you
have to borrow, the smaller your monthly mortgage payment, and the
lower your cost of interest of the term of the mortgage. So it makes
sense to put down as much of your own money as possible.
You should keep a cash reserve of unexpected
expenses and such adjustments payable on closing such as land transfer
tax, legal and mortgage fees and of course moving expenses, and
any new furnishings and appliances that may be necessary.
The first step towards establishing a maximum
mortgage limit is to calculate a monthly payment you can afford.
Financial institutions do this by calculating your debt-service
ratio.
To calculate your debt-service ratio, list all your loans (car,
personal loans, monthly credit card balances). The sum of these
loan payments and your mortgage payment (including principal, interest
and taxes) should not exceed approximately 40 per cent of your gross
income. The mortgage payment and taxes should not exceed approximately
30 percent of your gross income.
The size of the mortgage you can arrange, based on payments you
can afford, depends on interest rates. The lower the rates, the
larger the possible mortgage and the more affordable housing is.
But there are other mortgage terms to consider,
as well. How open is the mortgage?
Would prepayment be allowed?
Is the mortgage portable?
Discuss your mortgage options with your RE/MAX
Realtor, your banker, or a financial advisor.
The usual source of mortgage funds
is a lending institution such as a bank or trust company - and it
is the particular policy of the lending institution that determines
the maximum loan allowed. But there are other sources of funding
too, and your RE/MAX Realtor can help you choose the best lender
at the best rates and terms.
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