How Much Can I Afford?

The opportunity to own your own condo is easier than you might think. And not only is condo ownership a rewarding experience, it can also be financially rewarding.

Wise and Rewarding
Buying a condo is rewarding and a wise financial move. Real estate almost always appreciates, making it one of the safest investments you can make. And since you’ve got to have shelter, you might as well build equity in your own condo rather than increasing your landlord’s equity and paying his mortgage each month.

When figuring out how much you can afford, you should consider two things:

your income, assets, liabilities and financial obligations
your credit rating

First bit of advice: Get pre-approved
Since approval for a loan is part of the loan process, getting pre-approved puts you ahead during the closing of your condo. Even better, you’ll know exactly how much a lender is willing to loan you.

Lending guidelines
Although there are no absolutes in the lending industry, there are general guidelines such as the better your credit score, the better the interest rates will be.

Lenders use two ratios to assess risk of default, they are:

your total monthly costs compared to your monthly gross income
your total debts compared to your gross income

Ideally, your costs-to-income ratio should be less than 28% but some lenders will allow up to 33%. And your debt-to-income ratio (your total monthly debt, including housing costs plus loans and credit cards) shouldn’t exceed 38% of your gross income.

Don’t be house poor
A word of caution, realize that you don’t have to borrow the maximum amount a lender allows. Remember, you have other financial goals such as saving for retirement, college, vacations, etc.

Remember too that there are certain costs included in buying and owning a condo. Ask yourself these questions:

Do I have enough money for a down payment?
Do I have enough to cover the closing costs?
Will I be required to take out private mortgage insurance (PMI)?
Can I easily make the mortgage payments – including payment, insurance, taxes and interest (PITI)?
How much will it cost me to move?
Do I have enough money each month for living expenses, monthly maintenance fees, debt payments?

Closing costs typically are two to five percent of the price of the condo. This covers such expenses as land transfer tax, title insurance, lawyer’s fees, etc.

If you put less than 20% down, your lender may require you to take out PMI to protect them against default.

In calculating your monthly payments factor in all expenses you’ll incur such as hydro, internet, cable, etc.

When you’re ready, I can help
So you can see there are significant costs associated with owning a condo, but with it comes pride of ownership.

If you’re ready to join the condo owner ranks, give me a call. I’m an expert in the Toronto condo market and I’ll help you find the best condo for you and your family.