by Lino Arci
on Thursday, February 6th, 2020 at 11:40am.
The home-hunting process is exciting, but it can also come with its fair share of stressors. For many buyers, one of the biggest is setting a budget. There are many factors that will impact how much home you can afford, which is why getting started can seem so daunting. Fortunately, by breaking the process down into steps, you can narrow down your price range—and take a big step toward securing your ideal property.
If you're preparing to buy a home, here are a few tips you can use to figure out what you can afford...
Create your criteria
Before you can determine how much square footage you're able to afford, it's important to narrow down your criteria. You probably already have strong preferences when it comes to whether you'd prefer a detached home, townhouse, or condo. Chances are, you also know where you'd like to live—whether that's in Maple, Woodbridge, or one of Vaughan's other wonderful communities. Of course, these decisions will have an impact on your budget, so it's best to figure out how flexible you are before you start looking at your options
Browse the local market
Once you know which property types and neighbourhoods you're interested in—and those you aren't—it's time to start looking into your options. Based on your criteria, you can peruse online listings to get a sense of what's out there within your general price range. Of course, a local agent can provide you with far more accurate numbers. Remember: the right real estate professional will want to help you at every step, so it's never too early to get in touch!
Know your finances
Next up, it's time to run the numbers. Begin with your monthly household income after tax. Of this amount, how much can you put towards housing? The answer will depend on your expenses, including car payments, student loans, and any other sums that you pay on an ongoing basis. You should also be aware of roughly how much you spend on things like groceries and social outings (and consider whether you can cut back if need be). Keep in mind that most experts agree that you should spend no more than 32 per cent of your annual income on mortgage expenses!
Understand the costs
At this point, it will all start coming together. But before you'll truly know how much you can afford, you'll need to get a rough idea of the new costs you'll be taking on—beyond the sticker price. First, there are the assorted, one-time expenses you'll need to cover before your transaction is considered final. These are known as closing costs, and they generally total around 3 to 4 per cent of your purchase price. Then there are your new ongoing expenses, such as utilities and repair costs. As a rule, set aside around 1 per cent annually for maintenance. Your agent can help you get a better sense of the homeownership costs to expect.
Apply for pre-approval
While you know your expenses better than anyone, a lender can give you a clearer idea of how much financing you'll likely receive. That's why applying for pre-approval is such an important step. Based on your overall financial situation, you may or may not be pre-approved for a mortgage. If you are, knowing the amount can help you plan for your monthly payments and set your home-hunting budget. It's important to note that pre-approval isn't a guarantee that you'll be fully approved for a mortgage, but it should give you a pretty good indication either way.
While setting a home-hunting budget can be tricky, it's far from impossible. By working with an agent who knows the Vaughan market and the home-buying process, you can find a price range that works for you—and set yourself up for a successful purchase.
Ready to start the search for your ideal home? Reach out to learn how we can help today! To learn more about the home-buying process, visit our complete buyers guide!