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Determine What You Can Afford

When hunting for a new home, knowing up front what you can afford will help you save time and quite possibly disappointment later on. Buying a home is a major purchase, therefore, you’ll want to make sure that any home you buy meets your housing needs and fulfills as many of your housing wants as possible, based upon your budget.

The maximum home price that you can afford depends on a number of factors but the most important are your gross household income, your down payment and the mortgage interest rate.

Aim at consuming no more than about 32% of your gross monthly income for your monthly housing payments. Housing payments include monthly mortgage principal and interest,
property taxes, heat expenses, and if applicable, 50% of condominium fees. This amount is referred as Gross Debt Service (GDS) ratio.

You may have other monthly financial obligations such as car and credit card payments, property taxes, other loans, etc. The relationship between these all monthly debts plus your mortgage, and your gross monthly income is called Total Debt Service Ratio (TDS). The general rule is that these total monthly  payments should not exceed 40% of your income.

Click on this link to calculate Debt Service Ratios.

You can also use Calculators to find out how much you can afford to pay. Calculators provided on this site are helpful tools meant only as a help to provide general guideline for the user and should not be relied upon in connection with any particular transaction or situation.

If you want review your general financial state, use Net Worth Calculation as basic method of determining your general financial situation.

Use
Monthly Expense Estimate to find out impacts on the maximum affordability.

There are also some other important factors and information to consider before setting off to find your new home: