Under most circumstances, when you're trying to figure out what kind of home you can afford to buy, mortgage lenders use the 28 percent rule. The rule means you're not spending more than 28 percent of your monthly income on your mortgage before taxes. We're going to address four simple ways to be honest regarding, “What type of home I can afford in Toronto?”
1: Look at How Much You Can Afford to Borrow
Many future homeowners benefit from using the 28/36 rule. That means your monthly housing costs shouldn't be exceeding 28 percent of your gross monthly income. Regarding your monthly debt payments, those shouldn't exceed more than 36 percent of your gross monthly income. Working with these percentages helps you avoid getting into mortgage payments that are too high.
2: Determine How the Amount You Can Afford for a Down Payment
If you can put down a larger down payment, then you'll be able to purchase a bigger house. Typically, your down payment will come from two sources. They include a savings account or equity in your current home. You can avoid paying mortgage insurance if you put down at least 20 percent. Some loans only require a 3 percent down payment. Remember, though, the lower you go to higher, your monthly mortgage payments will be.
3: Think About What's an Affordable Price
Calculate what you have for your down payment and add it to the maximum amount you should be borrowing. That number is the total you can afford to spend on a home. Continue revising this number as you shop for mortgages and houses. For example, if you find a fixer-upper, it's wise to lower your down payment and put that money toward renovations. That way you’re not surprised with the need for funds after making the purchase.
4: Understand the Local Housing Market
Are you researching homes during a seller's market? Or, are you purchasing during a buyer's market? Knowing this information may be the difference between being pressured to commit more than 28
percent of your income to housing or not. Speak to your realtor about what you should be planning for, so you're not hit with surprises.
When it comes to asking yourself questions about the type of home I can afford in Toronto, you must be honest. Otherwise, you will find yourself having issues with debt, looking at houses you can’t afford, or setting unrealistic goals. Working with a real estate agent will solve or eliminate the majority of these issues. They’ll talk to you about how to figure out how much you can borrow, down payments, pricing, and the local market’s conditions
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