Mistake: Buying More House Than You Can Afford – 4 Key Lessons
It’s easy to become enamored with homes that are above your budget. However, you’ll regret it later if you stretch your budget too much. Purchasing a new home comes with several responsibilities. These responsibilities include paying for maintenance, repairs, updates, utilities, and more. Adding a mortgage payment on top of these expenses will leave little to no room in your budget for other costs. Buying more house than you can afford in Toronto puts you at higher risk of losing your home.
Lesson #1: Don’t Focus on the Maximum Amount You Qualify For
If you purchase a home exceeding your budget, you’re putting yourself at risk of losing your home if financial struggles occur. When other bills and expenses crop up, you’ll also find there’s less wiggle room. Neither of these situations is financially sound. Therefore, it’s a better idea to focus on what’s affordable. In doing so, you’re not fixating on your loan qualification. For example, if you qualify for a $250,000 loan, that doesn’t mean the monthly payments are affordable.
Lesson #2: Determine How Much You Can Afford
Your credit report isn’t going to show everything. That’s part of why you may be qualifying for a loan that’s higher than you can afford. Therefore, it’s up to you to develop a detailed budget that has line items for every expense your credit report doesn’t include. Factore in every obligation you’re responsible for, as well as those you can forecast after the home purchase occurs. That way, you can determine how much house is affordable for you. Otherwise, the monthly payments are going to be too high.
Lesson #3: Use a Mortgage Calculator
Mortgage affordability calculators are a handy tool when you’re not sure how to create a budget. They’ll get you on track and help you determine if you’re looking at homes that are out of your range or not. The calculator enables you to understand what price ranges are affordable, what’s aggressive, and which ones are a stretch. That way, you can steer clear of those rates during your searches.
Lesson 4: Always Spend Less Than You Can Afford
Things are going to come up–a renovation, repair, or upgrade. If you’re living in an expensive home, the mortgage payments will be too high for you to find the funds to cover those expenditures. Instead, purchase a home where you’re spending less than what you can afford. In doing so, you can build rainy day savings, emergency savings, invest and pay your other expenses without worrying as much.
Buying more house than you can afford in Toronto puts you at risk for losing that home. Instead, speak to your real estate agent about using a mortgage affordability calculator to determine how much house you can afford. Then, create a budget focusing on spending less than what you can afford.