Are you looking to buy your first home? While this is an exciting chapter in your life, it can also be stressful and feel overwhelming.
This is especially the case when it comes to decisions about your mortgage and how much debt you’re willing to take on. Here are a few questions you might have about these topics.
HOW MUCH DEBT IS ACCEPTABLE FOR A MORTGAGE?
If you’re getting ready to buy your first home, it’s important to set a budget and stick to it. This will ensure you select a home with a mortgage you can afford. According to the Canada Mortgage and Housing Corporation, you should spend no more than 35 percent of your gross monthly income on housing costs.
In addition, you’ll need to factor in any other debt you carry. The Government of Canada recommends that your monthly debt load, which would include mortgage payments, shouldn’t exceed 42 percent of your gross monthly income.
HOW DO YOU DETERMINE HOW MUCH YOU CAN AFFORD?
As mentioned above, the maximum amount you should pay toward your mortgage every month will depend on your income and how much other debt you carry. The size of your mortgage will also depend on how much you can afford to spend on a down payment.
However, there’s more than just the cost of mortgage payments to consider when determining how much you can afford to spend on a home. Among other things, you should consult with your realtor about the cost of closing the deal on a property. You’ll also need to factor in recurring expenses that come with owning a home, such as taxes, insurance, utility bills, maintenance and renovations.
WHAT DOES IT TAKE TO GET YOUR FINANCES IN ORDER?
Your credit score is one of the factors that will determine whether or not you’re ready to apply for a mortgage. If you need some help getting it within an acceptable range, you can schedule an appointment with a credit counsellor. Additionally, you’ll need to save for a down payment, which will be between five and 20 percent of the total cost of the property you want to buy.