01 Aug
2010

When choosing a mortgage, you need to consider more than just fixed-rate or adjustable home loans. You also need to consider affordability. Lenders can tell you how much of a mortgage you qualify for, but just because you qualify for a certain amount, this does not mean that you can easily afford that amount. Lenders consider your credit history, income, and financial information when deciding how much to offer you in a home loan, but ultimately only you can determine what you can really afford. When determining what you can afford, consider:

1) An amount below what you pay in rent. Keep in mind that owning a home is more expensive, as you will need to pay property taxes as well as home repairs, insurance, and other related costs. If your mortgage is the same as the rent you pay now, you will still end up paying quite a bit more in housing costs, and you may end up paying more than you can comfortably afford.

2) Consider your total take home pay and aim for a mortgage payment that keeps your total debt amount at no more than 40% of your income. That is, all your credit card payments, personal loans payments, car loans, and mortgage should not be more than 40% of your pay. This will leave you with a cushion for living costs.

3) Consider all your housing costs and ensure that those costs (including your mortgage) do not tally up to more than 32% of your total monthly income. Remember: your total housing costs will include not only your home loan, but also property insurance, property tax, repairs, utilities, and other essential housing costs.