How much of a home can I afford?
The answer is your mortgage purchasing power.
Understanding this can help you to make more informed decisions about buying a home and ensure that you are not stretching yourself too thin financially.
The first step is assessing your income.
Typically, lenders will use a debt-to-income ratio to determine your mortgage affordability. This ratio compares your monthly income to your monthly expenses, including your expected mortgage payment. The lower the ratio the more purchasing power you have. Meanwhile, higher ratios indicate you may need to consider a smaller mortgage or a more affordable home.
When looking at these ratios from employed borrowers, Mortgage Brokers can only take into account your gross income as-is. This number can be found on your Notice of Assessment. In this case, there are only a few ways to increase this purchasing power, such as adding a cosigner.
For self-employed, we can instead work with your business gross, regardless of what your personal gross is on your Notice of Assessment.
There are other factors that impact your mortgage purchasing power.
A high credit score can help you to qualify for a lower interest rate, which can increase your purchasing power. Similarly, a larger down payment can reduce the amount of mortgage you need, which can also help to increase your purchasing power. On the other hand, high levels of debt can reduce your purchasing power by increasing your debt-to-income ratio.
By taking a holistic approach to your finances, you can ensure that you’re able to afford the home you want without sacrificing your financial stability.
Contact Mortgage Suite today and see what your mortgage purchasing power truly is.
