Monday, April 15, 2024

What’s An Affordable Mortgage

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4 Types of Lenders – Mortgage Bank, Direct, Brokers, & Wholesaler – Which is the right one for you?!

You’ve estimated your affordability, now get pre-qualified by a lender to find out just how much you can borrow.

  • What will your new home cost? Estimate your monthly mortgage payment with our easy-to-use mortgage calculator.

  • Award Ribbon

    Use our VA home loan calculator to estimate payments for a VA loan for qualifying veterans, active military, and military families.

  • Dollar Sign

    Your debt-to-income ratio helps determine if you would qualify for a mortgage. Use our DTI calculator to see if you’re in the right range.

  • Pig Refinance calculator

    Interested in refinancing your existing mortgage? Use our refinance calculator to see if refinancing makes sense for you.

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How To Calculate Your Required Income

To use the Mortgage Income Calculator, fill in these fields:

  • Homes price

  • Loan term

  • Mortgage interest rate

  • Recurring debt payments. Heres where you list all your monthly payments on loans and credit cards. If you dont know your total monthly debts, click No and the calculator will ask you to enter monthly bill amounts for:

  • Car loan or lease

  • Minimum credit card payment

  • Personal loan, child support and other regular payments

  • Monthly property tax

  • Monthly homeowners insurance

  • Monthly homeowners association fee

  • My Monthly Rbc Mortgage Payment Will Be


    The mortgage amount is based on the qualifying rate of%.* The payment amount is calculated based on an interest rate of %.

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    Enter your annual household salary. This includes your spouse/partner.

    Consider car payments, credit cards, lines of credit and loan payments. This should not include your rent.

    Enter the amount of money you plan to use as a down payment. Donât forget you can also leverage your RRSPs.

    The Home Buyers’ Plan allows you to borrow funds from your RRSP to purchase your first home. Here are some of the key facts:

    • You and your spouse can each withdraw up to $35,000 from your RRSP.
    • The funds must have been on deposit at least 90 days before you withdrew them.
    • At least 1/15 of the funds must be repaid each year, beginning two years after the funds were withdrawn.
    • A signed agreement to buy or build a qualifying home is required.
    • You can only participate in the program once.

    For details,watch this video or seeCanada Revenue Agency

    Default insurance covers the lender in case of a failure to pay off the full mortgage amount. If your down payment is from 5-19%, a default insurance premium will automatically be applied to your mortgage.

    Other monthly expenses you may want to consider include such items as alimony and condo fees .

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    How Lenders Decide Who Gets A Mortgage

    Gage explains that there are four main factors that mortgage lenders consider when you apply for a home loan she calls them the “four Cs.”

    They are 1) credit history and score 2) collateral 3) cash and 4) capacity .

    “Underwriters review the loan based on the above criteria, as well as layered risk factors,” explains Gage. If you have low capacity , you could be denied a mortgage if you don’t have a big enough down payment. And on the other hand, a risky debt-to-income ratio can be overcome if a borrower has a lot of cash in the bank and stellar credit history, says Gage.

    “This is why it is vital to be pre-approved before going house shopping,” advises Gage. “An experienced loan officer will review credit with a potential borrower and oftentimes can provide them a ‘road map’ for better credit via tools the loan officer has access to.”

    For instance, Movement Mortgage loan officers can assist the buyers in improving their scores, including a “what if” credit simulator that shows borrowers what actions they can take to improve their in order to get the most affordable rates

    And if you have been putting money into savings, Gage recommends reserving some of your cash in an emergency fund separate from your down payment fund. Mortgage underwriters call this cash your “reserves,” and they prefer to see that you have enough to cover home repairs, property taxes, homeowners insurance and unexpected emergencies well after your closing date.

    Do Mortgage Calculators Require A Credit Check

    psdesignsystems: Whats My Mortgage Payment

    No, our mortgage calculator simply uses the information you enter to calculate how much you might be eligible to borrow, along with the value of a home you could afford. You wont even be required to enter your name.

    Only when you apply for a mortgage will you undergo a full credit check, which will be marked on your file and potentially impact your credit score.

    Read Also: Can You Get A Mortgage With A Fair Credit Score

    Try A 3%down Conventional Loan

    Its possible to get a conventional loan one backed by Fannie Mae or Freddie Mac with a down payment as low as 3% of the purchase price. Whats more, that down payment can often be covered with a down payment assistance grant or gift funds from a family member.

    Just note that to qualify for a 3%down conventional loan, most lenders require a credit score of at least 620 or 640. For those with lower credit, an FHA loan might be more appealing.

    Bmo Bank Of Montreal Mortgage Affordability

    Before you get a mortgage from BMO, it is important to know how BMO calculates your mortgage affordability. BMO takes into account the following factors:

    • Your household income
    • Your heating costs
    • Any applicable condo fees or maintenance costs
    • Your monthly debt payments to loans and lines of credit including credit cards, car loans, student loans, and leases.

    BMO includes the cost of mortgage insurance in your mortgage affordability calculation. This allows you to borrow more with a smaller down payment.

    BMO calculates your mortgage limit using the current qualification rate and a maximum gross debt service ratio of 39% and a maximum total debt service ratio of 44%. This means that your mortgage payment, property tax, heating costs, and half of your condo fees cannot take up more than 39% of your gross income. In addition, this amount plus your total debt payments cannot take up more than 44% of your gross income.

    Another factor in determining your mortgage affordability is your down payment. According to BMO, home buyers must have a minimum 5% down payment for homes worth less than $500K. For homes between $500K and $1M, home buyers must have at least 5% for the first $500K and 10% for the remaining amount. For homes worth more than $1M, home buyers must have a minimum 20% down payment.

    Recommended Reading: How Many Times Can You Pull Credit For Mortgage

    How Much Mortgage Can I Afford

    Generally speaking, most prospective homeowners can afford to finance a property that costs between two and two-and-a-half times their annual gross income. Under this formula, a person earning $100,000 per year can only afford a mortgage of $200,000 to $250,000. However, this calculation is only a general guideline.

    Ultimately, when deciding on a property, you need to consider several additional factors. First, it’s a good idea to have some understanding of what your lender thinks you can afford . Second, you need to have some personal introspection and figure out what type of home you are willing to live in if you plan on living in the house for a long time and what other types of consumption you are ready to forgoor notto live in your home.

    While real estate has traditionally been considered a safe long-term investment, recessions and other disasters can test that theoryand make would-be homeowners think twice.

    Why The Down Payment Matters Just As Much As Your Credit Score

    How to buy a home with student loans!

    A 20% down payment saves you from paying PMI on a conventional mortgage.

    The Consumer Financial Protection Bureau warns that PMI is meant to protect the lender not the buyer. From a lending perspective, a buyer who doesn’t put 20% toward their home puts more liability on the mortgage company since they are borrowing more money.

    And unlike your mortgage bill, your monthly PMI payment never goes toward paying off the cost of your home. This means you’ll be paying more money each month but not getting any closer to paying your house off.

    Another helpful reason to save up for a larger down payment is to influence the size of your mortgage: “In essence, a bigger down payment may allow you to buy a higher priced home,” Gage tells CNBC Select.

    The more equity you have in a home, the lower the risk for default. This lower risk can then translate into a more favorable rate for the borrower.

    Also Check: How To Get The Best Interest Rate On A Mortgage

    How Is My Affordability Calculated

    Heres a breakdown of each factor impacting your home affordability and the limit it places on your asking price. Your affordability is the minimum of all the values shown.

    Limiting Factor
    • Your down payment directly imposes a limit on your maximum asking price.
    • UnderCMHC regulations, your total debt service ratio cannot exceed44%. The TDS ratio is calculated by dividing your total annual housing-related and debt expenses by your gross annual income. These expenses include:
    • Yourmortgage payment
    • Your property tax
    • Half of your condo fees
    • All forms of debt payments
  • UnderCMHC regulations, your gross debt service ratio cannot exceed39%. The GDS ratio is calculated by dividing your annual housing-related expenses by your gross annual income. These expenses include:
  • Your mortgage payment
  • Your property tax
  • Your heating costs
  • Half of your condo fees
  • Your total monthly expenses cannot exceed your net monthly income.
  • How Much House Can I Afford With A Va Loan

    With a military connection, you may qualify for a VA loan. Thats a big deal, because mortgages backed by the Department of Veterans Affairs typically dont require a down payment. The NerdWallet Home Affordability Calculator takes that major advantage into account when computing your personalized affordability factors.

    Remember to select ‘Yes’ under ‘Loan details’ in the ‘Are you a veteran?’ box.

    For more on the types of mortgage loans, see How to Choose the Best Mortgage.

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    How To Calculate Your Home Buying Budget On A $50000 Salary

    As you can see in the examples above, two different borrowers who both earn $50,000 a year could have very different home buying budgets.

    To figure out how much house you can afford, you need to factor in your own income, debts, down payment savings, and projected housing costs like homeowners insurance and property taxes.

    Remember, principal and interest on the mortgage arent the only costs youll pay each month as a homeowner.

    Luckily, you dont have to do all that math on your own. You can use an online mortgage calculator one that includes taxes and insurance to estimate your monthly mortgage payment.

    What Is Mortgage Affordability

    psdesignsystems: Whats My Mortgage Payment

    Mortgage affordability refers to how much youre able to borrow, based on your current income, debt, and living expenses. Its essentially your purchasing power when buying a home. The higher your mortgage affordability, the more expensive a home you can afford to purchase.

    The term affordability is also used to describe overall housing affordability, which has more to do with the cost of living in a particular city. If the cost of housing relative to the average income in a city is high, it will be seen as a less affordable place to live. The two terms are related, but its important to understand the difference.

    There are many factors that will affect the maximum mortgage you can afford to borrowincluding the household income of the applicants purchasing the home, the personal monthly expenses of those applicants , and the expenses associated with owning a home .

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    Other Mortgage Qualification Factors

    In addition to your debt service ratios, down payment, and cash for closing costs, mortgage lenders will also consider your credit history and your income when qualifying you for a mortgage. All of these factors are equally important. For example, even if you have good credit, a sizeable down payment, and no debts, but an unstable income, you might have difficulty getting approved for a mortgage.

    Keep in mind that the mortgage affordability calculator can only provide an estimate of how much you’ll be approved for, and assumes youre an ideal candidate for a mortgage. To get the most accurate picture of what you qualify for, speak to a mortgage broker about getting a mortgage pre-approval.

    Canadian Home Mortgage Qualification Tips

    If you are a first-time home buyer looking for the right price on a home in Canada, the real estate market in most metropolitan areas continues to be priced in such a way that it remains affordable to those making an average wage or above.

    The resiliency of the market place over the past several years combined with a fairly good economy have created the type of environment that should encourage you to participate by buying.

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    Increase Your Down Payment

    If you have the cash, you may want to up your down payment to 10 or 20 percent. A down payment raises your maximum home price, which may be enough to buy a home that you want.

    If you dont have the cash, keep in mind that you can ask relatives for gift money.

    You can also apply for homebuyer assistance programs from state and local government programs that provide down payment and closing cost funds. Your eligibility for these programs may vary based on your personal finances.

    What Outgoings Are Lenders Likely To Ignore

    CalHFA vs GSFA – A Comparison of the 2 Most Popular Down Payment Assistance Programs

    Some lenders will ignore any outstanding loan or credit card payments on the agreement that these are all cleared before any mortgage would commence. There are a number of other outgoings that some lenders may also be prepared to ignore for affordability purposes, namely:

    • School fees
    • Charitable donations

    As well as current outgoings, mortgage lenders will also want to conduct a stress-test of your future finances in the event of an unexpected change in your circumstances such as a sustained increase in interest rates or if you were ever unable to work due to an illness.

    As mentioned many times in this article, it cannot be stressed enough that all lenders use their own guidelines when conducting their mortgage affordability checks. If you make an enquiry with us we can put you in touch with a mortgage affordability expert who will understand what each lender will require.

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    What Is Options For Homes

    Options for Homes is Canadas largest developer of affordable ownership housing. As a non-profit social enterprise our sole mission is to make homeownership more accessible for middle income households. We do that through the Options Ready Program, which is designed to help people become confident home buyers, provide financial literacy, and access to a shared equity down payment that helps make ownership more affordable. We have been in operation since 1994 and weve won nine industry awards. Our 15th condo is currently under development.

    How Much Can I Afford

    How much you can afford to spend on a home in Canada is most determined by how much you can borrow from a mortgage provider. That is unless you have enough cash to purchase a property outright, which is unlikely. Use the above mortgage affordability calculator above to figure out how much you can afford to borrow, based on your current situation.

    Also Check: What Makes Mortgage Rates Change

    Helping You Get An Affordable Mortgage

    The current rules around mortgages were put in place to help make sure that customers only borrow what they can comfortably afford.

    So when it comes to applying for a mortgage, you will have to go into a lot of detail about your income and spending. Ultimately, this is for your benefit, as the adviser or lender will be able to recommend a product that best suits your needs and circumstances.

    How To Calculate A Down Payment

    FHA Loans Demystified

    The down payment is the amount that the buyer can afford to pay out-of-pocket for the residence, using cash or liquid assets. Lenders typically demand a down payment of at least 20% of a homes purchase price, but many let buyers purchase a home with significantly smaller percentages. Obviously, the more you can put down, the less financing youll need, and the better you look to the bank.

    For example, if a prospective homebuyer can afford to pay 10% on a $100,000 home, the down payment is $10,000, which means the homeowner must finance $90,000.

    Besides the amount of financing, lenders also want to know the number of years for which the mortgage loan is needed. A short-term mortgage has higher monthly payments but is likely less expensive over the duration of the loan.

    Homebuyers need to come up with a 20% down payment to avoid paying private mortgage insurance.

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    Who Can Help You In The Mortgage Market

    There are many lenders in Canada serving the mortgage market: banks, other large financial institutions & mortgage brokers. Most mortgage brokers in your town or city have access to a broad range of local & nationwide lenders. A good mortgage broker is normally able to put you into a program at a competitive rate. Banks like the Bank of Nova Scotia are national and can also provide immediate financing for your loans. In practice, however, most buyers end up pre-qualifying with a bank or a realty institution through their real estate agent or mortgage broker. In that process, your needs and requirements are taken into consideration and matched with a lender that can provide the best service for you. In other words, you may end up with a completely different bank holding your paper than when you started. As long as the loan is backed and it meets your terms, you should feel confident in signing it.

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