Can I afford a mortgage?

Whether you're a first-time buyer looking for the perfect starter house or a second home buyer trading up to your waterfront dream home, you are probably asking the same questions: Can I afford this house? And is this the right move at the right time?

To get a more detailed picture of what you can afford to borrow; you should seek to examine three things: yours and your co-borrower's income, your monthly budget and your savings.

Income

• Do you have a secure employment?

• Do you employed in a commission-based job? 

• Are you confident that your commission payment method and your monthly income are stable?

• Do you expect your and your co-borrower’s income to increase or at least stay the same?

• Are you expecting or planning to have a child in the near future? 

• Do you know if your salaries and budget will change once the baby is born? (Which may reduce your monthly take home salary)

Monthly budget

It's very important to know not only how much you earn, but also how much you spend or you expect you are going to spend in the near future. Even with attractive low mortgage rates the potential mortgage payment plus the additional monthly expenses that go along with owning a property could change your budget. For instance, would you be able to afford your monthly mortgage payments if you were hit with a more 1% interest rate rises? Or would you be able to afford your monthly mortgage payment if the income of your household decreases by 5% to 8%? 

You should plan how much you currently spend on the following categories: car and transportation, bills and utilities, education, entertainment, food & dining, gifts and donations, health & fitness, home & children, personal care, pets, shopping, taxes, holidays and other diverse monthly expenses. 

What is the normal rule of affordability? 

A typical rule of thumb is that you should not devote more than 35%-37% of your income toward debts (i.e. including mortgage payments, car payments and credit card payments). Certainly, you will probably have to consider other factors such as the average house prices (in the desired area or similar areas near by) and your immediate need for more housing space.

Savings

You will likely need a significant down payment in order to buy a new house.  Mostly 30% down payment on the value of home is the most common down rate. Do you think you will have enough money for the necessary down payment & closing costs plus the new monthly mortgage payment? Do you have enough money in savings in case of an emergency like an injury or a broken housing system?

It is important to not completely raid your savings when you buy a new house. It is always advised to expect the unexpected with homeownership. In general, you should budget between 1 to 3 % of your budget on house repairs and maintenance.

Use our tool to determine with an easy way how much house you can afford

Once you've determined how much you can afford, start shopping for mortgage rates. There are many different mortgage deals to pick from, so choosing the right one for you can be tricky. It can depend on a number of factors such as repayment period, type of borrower, level of interest, fixed or variable rate, fees, legal framework and more.