How Do I Know if I Can Afford a House?

Many people dream of owning their own home.  Most people get there, with a little planning along the way.  In order to purchase a home, you will need a down payment, a loan, and money for closing costs, at a minimum.  If you plan to modify the home in any way, whether by changing the wallpaper or replacing the roof, you will need additional money for those expenses.  So how does one know when one is in a position to afford a house?

The Down Payment

First and foremost, home buyers need a down payment.  While 20 percent of the home’s purchase price is an ideal down payment, most lenders will offer home mortgages with less than 20 percent down.  That said, a down payment is still necessary.  This tool, from the Financial Consumer Agency of Canada, lets you set your savings goals.  Enter the amount you want to save, and the tool will help you figure out how and when you will hit your target based on contribution amount, contribution frequency, and/or the target end date for reaching the goal.

Qualifying for a Mortgage

You can use this tool, also from the Financial Consumer Agency of Canada, to determine whether or not you currently qualify for a home mortgage.  The tool looks at your income and expenses, including the property taxes on the home you wish to buy.  You can adjust the value of the property, the size of the down payment, the amortization period, payment frequency, and term to see how different variables impact the mortgage.  

The Benefits of Prepaying a Mortgage

If you don’t want a 25-year mortgage but are unsure if you can afford the steeper payments of a shorter mortgage, this tool allows you to calculate how quickly you can pay down a mortgage based on prepayment amounts and frequencies.  The tool also calculates how much money you can save by paying ahead on your mortgage.  

Deciding on a Mortgage Type

There are pros and cons of both fixed rate mortgages and variable rate mortgages.  Only you can decide which mortgage type is best for you and your circumstances.  However, you can find some insight by reviewing this article.