When looking to buy a home, the first step is to find out how much the mortgage is. Affordability is the income, monthly expenses such as credit expenses, car payments, and other expenses involved in buying a home that includes apartment fees, heating costs, and property taxes.
The buyer needs to determine their cash resources before buying a home. The required money is from the initial down payment paid towards buying. A dedicated mortgage professional helps the buyer with the estimated closing costs under the affordability calculator, which helps to determine how much the buyer can afford on the house.
A mortgage affordability calculator is an essential tool for a buyer, and a professional can help the buyer to utilize the calculator well. The calculator helps to address all the essential needs, such as offering the affordable mortgage and best rates.
What is mortgage affordability?
Mortgage affordability is an estimate of how much a buyer can borrow base on their current income, living expenses, and debt; this is the main fact when buying a home. The higher the mortgage affordability, the most expensive home a buyer can afford to purchase.
The term Mortgage affordability is a term used to describe housing affordability, such as the cost of living in a city. The housing cost is relative to the average income in a particular city; this will show how affordable the place is to live.
Using a mortgage affordability calculator
Using the mortgage affordability calculator, the buyer enters their income or their partner’s income or the co-applicant income, the living costs, and debt payments. Then the calculator estimates the living expenses if the buyer is not aware of the estimate.
With the generated numbers, the buyer can calculate how much they can afford to borrow. The buyer can also change the amortization period and the mortgage rate, to know how it will affect the mortgage affordability and monthly payments.
Estimate affordability
Most lenders apply the two ratios method to estimate the mortgage amount the buyer qualifies for, and the ratios will indicate how much the buyer can afford. Total Debt Service and Gross Debt Service ratio are the two ratios that take into account the buyer’s income, overall debt load, and monthly housing cost.
Canada Mortgage and Housing Corporation have a first affordability rule that the mortgage principal, taxes, interest, heating expenses, and the monthly housing costs should be less than 32% of the buyer’s household monthly income. For condos, the principal, interest, taxes, and heating expenses will include half of the buyer’s gross monthly condo fees. The total percentage of the housing costs of the gross monthly income is the GDS ratio.
Canada Mortgage and Housing Corporation’s second affordability rule is the total monthly debt load, which includes the housing costs should be less than 40% of the buyer’s monthly income. The monthly debt load that includes credit card interest, in addition to housing costs, loan expenses, and car payments. The sum in the percentage of the total monthly debt load of the buyer’s gross household income is the TDS ratio.