Your Financial Position
Before you begin looking for your home, you need to determine your financial position so that you know how much you can spend on your home. The following is a list of things that you need to look at and determine before you can begin searching for your dream home.
- ○ Determine the price range of homes that you can afford and how much money you can use as a down payment.
- ○ Be prepared for the deposit which must be given upon subject removal or in some cases upon signing of offer.
Some other financial areas you must consider.
Many financial institutions offer a pre-approval service that tells you in advance the amount that they are willing to lend based on your income, down payment and any debts that you currently have. This way you will be able to view homes that match your budget and affordability.
Gross Debt Service (GDS):
The normal banking system allows buyers to use up to 32% of their gross monthly income towards housing costs, which includes mortgage payments, taxes and heating costs. If the property to be purchased is a condominium then half of the monthly maintenance fees must be included.
Total Debt Service (TDS):
To get a more accurate estimate of what you can afford, TDS takes into account any additional debts that you owe (car payments, credit cards etc…). No more than 42% of your gross monthly income can be used for housing costs and other debts.
Remember that your comfort with your monthly payments is more important than qualifying within the guidelines of a financial institution. Take time to create a detailed budget to ensure that what you are comfortable paying is in line with what the system allows.