Home ownership is an exciting proposition, but before you can know whether homeownership is right for you, it is important to understand what is involved.
One of the biggest mistakes you can make as a new homeowner is to overextend yourself financially. It is important to be sure that you can comfortably afford your mortgage payments and all the other living expenses required of your lifestyle choices.
First, know your net worth. This is done by subtracting your total debts from your total assets. This will give you an idea of how much you can afford for a down payment.
Next, prepare a budget. Detail all of your monthly expenses and payments. Add everything up and subtract this from your monthly income. This will give you an idea of how much you can afford to spend monthly on your mortgage payment. Remember to add in for unexpected expenses, and for saving for future plans and goals.
You will require a minimum down payment of 5% of the Lenders Assessed Value of the property in order to begin mortgage qualification. If you put down less than 20% of the Lenders Assessed Value, you will need to purchase Mortgage Default Insurance. The good news is, the more you put down, the less interest you will pay over the life of the mortgage.
Once you understand the basics, it is time to visit your Lender or Mortgage Broker to determine a pre-approved mortgage amount. Your lender will look carefully at your finances and be able to give you an amount (under ideal conditions) that they would be willing to lend to you. The most important factors in determining this amount are your household income, the amount of your down payment, and the current interest rates.
Don’t be surprised if you qualify for more than you expected. Remember, you do not want to over extend yourself! Check that budget! Let your budget determine how much mortgage to take on.