How much of a home in Winnipeg can you actually afford to buy? That is a very important question so that you stay within your budget. There are calculations that will allow you to discover what you can afford with your budget based on your income and your other expenses. This information is important, because sometimes a lender will approve you for more than you can really afford. A home is a huge investment, and it shouldn’t be something that you feel overwhelmed paying for.
Understanding Mortgage Affordability
Most lenders also look at mortgage affordability guidelines when they determine who qualifies for their loans. The total debt to income ratio typically can’t be more than 36%. This means that the borrower has enough income to reasonably keep up with the ongoing mortgage payment.
However, these guidelines don’t take future changes into consideration. That is up to the consumer to evaluate. For example, saving for retirement and even the college costs for any children. There are also changes to mortgage insurance and taxes that can’t be calculated with mortgage affordability. This is why it is important to have enough money for savings and to account for the risk of increases in the overall cost of owning a home.
How does it Work?
The first part of the calculation is your income and expenses. Always enter the income on the lowest possible side and the expenses on the higher side. For example, if you may get a bonus this year at work, enter only the lowest amount of annual income. If your bonus is more, that is just extra money in your budget to work with.
By entering the gross annual income and the down payment you are getting things in motion for the overall calculations to be done. You can try the calculations with different down payment amounts too. This information can help you to decide if it is best for you to put more down on your home or to keep more money in savings for variable expenses you may face in the future.
Monthly debt goes into the next section. This includes your credit cards, any student loans, childcare, etc. Don’t include your current rent here though because that is going to be changing if you buy a home. You do need to add in your utilities, groceries, car payments, and any other debts you have.
The next section is where you enter your mortgage rate of interest, your estimated insurance, and your estimated property taxes. The results with this mortgage affordability calculation tool is that you get to see the conservative side of how much home you can afford, including taxes and insurance. It also shows you the aggressive side of things. It can help you to make very important overall decisions about the home buying process and the home that you can reasonably afford.
The lower you can get the risk, the more comfortable you will be with your budget.