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How Do I Save To Buy A Home? Part Two

How much money do I need to buy a home?

What’s the first thing you should do before you buy a new home? If you said go out and look at homes, you’re wrong. First, sit down and work out how you’ll pay for it. If you don’t, you may end up looking at homes you can’t really afford. That makes it a lot harder to stick to your budget.

How much home can I afford?

Follow these steps to find out.

1. Find out how much you can borrow to buy a home

Ask your bank how much they will lend you for your new home. Or, ask your real estate agent to estimate the amount for you. The bank looks at:

What you make each month and how much you can spend on mortgage payments.
How much the house is worth and how much you can pay in cash (your down payment).
What it will cost you to run your home – including taxes, heating, and insurance. If you are buying a condo, there will be a regular monthly charge called a maintenance fee. This pays for your share of common costs, such as snow clearing and building insurance.
Example: Let’s say your household income is $60,000 and you have no debts. Guidelines suggest that you can afford to pay $1,600 per month for your housing costs. That includes your mortgage, taxes and heating. The bank will likely give you a mortgage for up to $200,000. The amount also depends on what you can save as a down payment.

2. Decide how much you will save as a down payment

For many people, saving for a down payment is the hardest part of buying a home. At one time, you needed a down payment of 25% of the price of your home. Nowadays, you can sometimes buy a home without any down payment at all.

Tip: It costs less to borrow if your down payment is at least 25%. If you put less down, you will have what is called a “high-ratio mortgage.” This means you will have to buy insurance from the Canada Housing and Mortgage Corporation (CMHC), at an additional cost to you.

Example: If you qualify for a $75,000 mortgage and have saved $25,000, you can buy a $100,000 house. The $25,000 is your down payment, which equals 25% of the purchase price.

Remember: Make sure your home fits your budget

If you spend too much, you’ll have a bigger and more costly mortgage.

Learn more…

To calculate the maximum purchase price you can afford, try one of these calculators.

Bank of Montreal calculators Rent vs. Own Calculator: Calculates the size of mortgage that equals your current monthly rent.

ING’s maximum Mortgage calculator: Calculates the maximum mortgage you qualify for, based on your yearly income, and tells you what your monthly payment would be.

Canada Mortgage and Housing Corporation’s CMHC’s mortgage calculator: Same as above, but also considers things like amortization and the amount of your down payment.

KJE Computer Solutions Financial Calculator: Same as above, but also calculates the GST, CMHC premium, and prints an amortization schedule.

Check out the Investor Education Fund for more information like this.

You may also like to read:

How Do I Save To Buy A Home? Part One

How Do I Save To Buy A Home? Part Three

How Do I Save To Buy A Home? Part Four

How Do I Save To Buy A Home? Part Five

This entry was posted on Tuesday, October 20th, 2009 at 7:14 am and is filed under Financing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

1. How Do I Save To Buy A Home? Part One | Wasaga Beach Real Estate-Wasaga Beach Homes For Sale-Wasaga Beach News said at March 18th, 2010 at 6:54 am

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