When you set out to buy a house, the first thing you need to do is figure out how much of a down payment you can afford. Then, you need to figure out the size of the monthly payment that you can afford.
Mortgage Pre Approval – How much to put down
Down payments for a mortgage can be as small as 5 percent of the purchase price. So if you’re buying a $600,000 house, that means you only would need to put $30,000 down. However, that means you’re financing $570,000 on the house. Also, because you’re putting down less than 20 percent, you’re taking out what the lenders call a “high ratio” loan, which means that you will end up paying for private mortgage insurance (PMI) on top of your monthly interest and principal payments. The fact that you’re borrowing so much of the home’s purchase price means, to the lender, that you’re at greater risk of default — and so they justify require the insurance premiums. To avoid that PMI, you’d have to put down $120,000 on that house.
Once you’ve figured out how much to put down and entered that in the calculator, you’re going to enter your annual income as well as such choices as the amortization term of the loan (up to 35 years), the term of the mortgage you want to take out (up to 10 years), the interest rate, the applicable property taxes, the condo fees (if applicable) and the monthly heating bill, which is required as a part of the mortgage application process for CMHC and other providers.
After you have entered these numbers, you’ll get a clear breakdown of what you can afford in terms of pre approval from a lender. This can really save you some frustration when you’re shopping for a house. If you already know that you shouldn’t look for a house that costs more than, say, $700,000, then that $825,000 that has been attracting your attention for a while won’t be in the realm of possibility. If you have that number in mind already, then you won’t fall in love with a home — and then come home to crunch the numbers and find out that it’s really going to be impossible.
Having this sort of breakdown also helps you avoid the temptation of ending up “house poor” — having mortgage payments that are so high that you can’t afford to do things like go on vacation each year or send your kids to band trips in the spring and summer. Give yourself plenty of room in your budget by using the preset tolerances in our calculator. That way you’ll get a wonderful house and still have the means to enjoy life.
Try Our Mortgage Approval Calculator – This calculator steps you through the process of finding out how much you can borrow.