Money Matters

How Much Can You Afford and What Will It Get You? When it comes to buying a house, the numbers get so big they can start to lose meaning. You may pass on $2 homebrand toothpaste in favour of the $2.25 brand-name, but zeros can really add up when it comes to a home. You cannot buy a $2,250,000 home on a $2,000,000 budget, even if you do stick with that bargain-brand toothpaste and amortize it over 30 years. So how much house can you afford? What will that get you in your local market? Today, fortunately, it is easier than ever to get those answers.

Doing the math

The first question used to be answered with scribbled calculations done while hunched over a dining room table. Things are much easier now. You can simply plug some numbers into an affordability calculator and voila! You will have your answer. Of course, you will need to know what numbers to enter. You will start with your gross annual income.

Then plug in any debt you currently owe, including car payments, existing mortgage payments that you will continue to owe, child support, alimony and minimum monthly payments on credit cards. You do not need to worry about things like utilities and food – the calculator already assumes you are going to need to eat and use lights and even buy clothes and entertainment. Finally, enter how much you have saved toward a down payment. The affordability calculator will tell you what you can afford to spend.

Your DTI

What your lenders are going to be very interested in seeing is your DTI or Debt to Income ratio. If you want to see how that figure shakes out for you, try speaking to your banker. Once you are done you will know exactly what percentage of your income goes to paying off existing debt.

You can also check out the mortgage calculator to get an estimate of your monthly mortgage payment if you buy a home at that price. Then you can fiddle around with different interest rates and see what a 15-year loan would look like compared with a 30-year loan, or what spending a little less would look like in your monthly budget. The interest rate you will pay for your mortgage can have a big impact on your affordability. You can get a few quotes from multiple lenders by entering details such as your income, home purchase price, and credit score, to see exactly what interest rate you will qualify for. Having real numbers to look at will help make taking the leap a whole lot easier.

The marketplace

So now you know what you can afford, the next question is what will that buy in your market? The same payment that would buy you a mansion in Woodlands will not get you a shack in Orchard. But once again, you are armed with an impressive array of research to help you. Speaking to a Ping Property Agent is like having your own staff of economists to help gather and decipher housing data from around the country. For instance, instead of driving around looking at asking prices or relying on the advice of friends and family who might have bought a house in a vastly different market, you can simply look up the local property search portals for the area you are interested in.

The other factors you will want to consider is what kind of market are you buying into. Is it a buyers market, a sellers market or neutral? You can get a pretty good idea by looking at the market reports for your area. Rising values and dropping inventory puts sellers in the driver’s seat. Stagnant or even lowering prices with increased inventory puts buyers in charge.

If it is a sellers market, prepare yourself for a challenge. You may make several offers to buy a home before one is finally accepted. You may find yourself having to offer above asking price just to be considered. Do not let a few disappointments pressure you into jumping into a home that does not really fit your needs. At the same time, you are not going to have time to sleep on it if you find a home you love in a hot seller’s market. But with all your savvy market research and knowledge, that will not be a problem.

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