A scary but important question! It’s a good idea to determine how much you can afford before you start looking for your home, or even worse, falling in love with a home that costs more than you can afford.
Mortgages Made Easy
When determining what you can afford some things you will need to consider are:
- Your current income and assets
- Your down payment amount
- Current interest rates and length of the term
- Your current financial obligations and responsibilities
- The home you may be interested in
- Your relationship status
- Sale of your existing home
Each of these things can have a positive and negative affect on what you can afford. Once you determine that you can afford to buy, or to discuss your mortgage options further, please contact me.
A good starting place to find out if you can afford to buy is to create a budget that shows where you are spending your hard earned money. You can ask us for our Budget For Mortgage Applications spreadsheet which we will use to prepare for your mortgage application to determine how much mortgage dollars you have to spend.
“We showed up at Jacquie’s office just to explore our options and ended up putting an offer on a house one week later. Jacquie was able to walk us through everything quickly and efficiently so we were sure we could afford and purchase our first home. What could have been major road blocks became much less than small bumps due solely to her determination, assistance and abilities to lead us through this process.“
~ Megan and Chris
Debt Ratios (GDS / TDS Ratios)
Lenders have long relied on two standard measures of one’s “ability to pay” their mortgage:
- Gross Debt Service (GDS): The percentage of the borrower’s income that is needed to pay all required monthly housing costs (mortgage payments, property taxes, heat and 50% of condo fees).
- Total Debt Service (TDS): The percentage of the borrower’s income that is needed to cover housing costs (GDS) plus any other monthly obligations that an individual has, such as credit card payments and car payments.
The acceptable ratios for both have generally been 32% and 40% respectively.
For people with very high credit scores, GDS requirements are often waived and the TDS maximum is slightly higher (44% as of January 2011).