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How Much of a Home YOU can Afford (By Salary)

Navigating the mortgage landscape can be complex, especially when determining how much of a mortgage you’ll qualify for based on your income. In this blog, we’ll explore this crucial aspect of home buying by examining three different household income levels: $100,000, $150,000, and $200,000.

Mortgage Qualification: More Than Just Income

When it comes to mortgage qualification, it’s not solely about how much you earn. Your debts, credit score, and overall financial situation play a significant role. However, for simplicity, we’ll focus on the impact of income while considering a monthly payment obligation of $500, which could encompass vehicle payments, lines of credit, or child support.

Scenario 1: Household Income of $100,000

So let us start with a household income amount of $100,000

A $500 monthly debt obligation,  and $2500 for the annual property tax amount. With an interest rate of 4.99%, and a household income of $100,000. This will give us a purchase price point of $420,000 purchase. The minimum down payment required on this is $21,000 and approximately $4,000 in closing costs. 

Scenario 2: Household Income of $150,000

Next up let’s look at a household income of $150,000

Using the same interest rate of $4.99%, property taxes of $4,000, and monthly debt obligation of $500, you’ll potentially be able to qualify for $620,000 with $37,000 for the down payment and $8,000 for the closing cost needed before closing. 

Scenario 3: Household Income of $200,000

For those with a household income of $200,000

Considering the same interest rate and a slightly higher property tax of $6,000, the qualifying purchase price could be around $850,000. This would necessitate a down payment of $60,000 and $13,000 in closing costs.

Boosting Your Mortgage Qualification

1. Decrease Your Debts

Lowering your debts is a crucial step in enhancing your mortgage affordability. When lenders assess your mortgage application, they look at your debt-to-income ratio, which is the percentage of your income that goes towards paying debts. A high debt-to-income ratio can make lenders hesitant to offer a large mortgage as it suggests a higher risk of default. By paying off debts, especially high-interest ones like credit card debts, you reduce this ratio, demonstrating better financial management. This not only increases the likelihood of being approved for a mortgage but also potentially qualifies you for a larger amount. Simple strategies like budgeting, consolidating debts, or prioritizing high-interest debts can be effective in reducing your overall debt burden.

2. Improve Your Credit Score

Your credit score is a numerical representation of your creditworthiness. Lenders use it to assess the risk of lending you money. A higher credit score usually indicates a history of timely payments and responsible credit management, making you an attractive borrower. It can lead to better mortgage terms, including lower interest rates, which directly impacts how much you can borrow. Improving your credit score can involve several steps: paying bills on time, keeping credit card balances low, avoiding new credit inquiries, and regularly checking your credit report for errors. Remember, improving a credit score is a gradual process, but the financial benefits, particularly for a large commitment like a mortgage, are substantial.

3. Consult a Mortgage Agent

Mortgage agents are professionals who can guide you through the complex process of finding and applying for a mortgage. They have access to a wide range of mortgage products from various lenders, including banks, credit unions, and specialty lenders. Each lender has different criteria and offers different rates and terms. A mortgage agent can help you navigate these options and find the best fit based on your financial situation, preferences, and goals. They can also provide valuable advice on how to improve your chances of approval and potentially secure a more favorable mortgage rate. Moreover, a mortgage agent can simplify and expedite the application process, saving you time and reducing stress. Their expertise can be particularly beneficial for first-time homebuyers or those with unique financial situations.

If you have any questions, feel free to reach out to my office at 519-250-4848 or email Rasha@shopmortgages.ca and either myself or one of my mortgage advisors will be happy to help.

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