You have decided to purchase a home. Congratulations! Now, the important questions are how much can you afford to spend and what will those monthly payments be? Lenders have specific methods for calculating the total mortgage payment amounts a potential borrower will be able to afford. After all, your lender will want to be sure that you can afford to pay back their loan.
A trusted Edmonton mortgage broker can help you calculate the payments you can afford and figure out the mortgage you will qualify for with a lender. With an Edmonton mortgage calculator information, you will better realize how much you can afford and be in a better position to obtain a pre-approved mortgage, taking you on your way to homeownership.
There are basically two steps to calculating the payments you will be able to afford in a mortgage.
Calculate your total debt servicing (TDS) number, just as a lender would do: Take 35% of your gross monthly income and 42% of your gross monthly income. The TDS is the total monthly payment you can afford after monthly minimum credit card payments and other loan payments are subtracted.
Calculate your gross debt servicing (GDS) number. This is the amount of your mortgage payment (including principle and interest, property tax, condo fees and heating costs). Subtract the principal, interest, taxes, fees and heating to determine the actual housing loan payment.
Imagine you earn $60,000 per year (or $5,000 per month) and your car loan is costing you $300 a month, credit card debt is low at less than $1,000 per month, and the home you wish to buy is not a condo, and property taxes on the home will be $2,100 a year ($175 monthly). Taking the calculations step by step:
- The TDS is $2,100 ($5,000 x 0.35).
- The GDS is $1,750 ($5,000 x 0.42).
- Your minimum monthly loan payments (credit cards, car loan) add up to about $330 per month.
- TDS minus debts is $2,100 minus $330, equaling $1,770.
- Compare GDS ($1,750) to TDS ($1,770). Use the lower of these numbers next:
- Find out the property tax costs ($175 monthly), condo fees ($0) and heating costs ($100).
- Principal and Interest Payment (P&I) can now be calculated: Subtract the costs in Step 6 from the number calculated in Step 5: P&I payment is $1,475 for someone who earns $60,000 per year. This payment, at an interest rate of 3.09%, would mean a total mortgage of about $347,000.
- It may sound complicated, but plug in your own numbers and you will come out with a pretty good estimate of how much mortgage lenders will be willing to give you based on your salary.
Of course, our mortgage professionals at MyMortgageBroker.com can calculate all of this for you much quicker and easier as we have years of experience and the necessary expertise. Give us a call today at 403-870-2669 for a quick calculation of the most affordable mortgage for you.