#GoodReads – Mortgage Amounts

#GoodReads – via Canadian Real Estate Magazine.

“How many times my salary can I borrow for a mortgage?”

“If you’re looking into getting a mortgage, one of the first steps is figuring out just how much you can afford. There are many factors that can affect how much mortgage you can afford. These will include your income as well as your credit score and mortgage rate, debt capacity, and more.

One common way of understanding how much mortgage you can afford is by determining an amount based on how many times your salary the mortgage costs. For home buyers at the very start of the process, this can give you a general idea of what price range you can expect to buy in.

However, your salary will not tell the whole story when it comes to how much mortgage you can afford, so for more specific figures, you may need to do further calculations or talk to a lender or mortgage professional…

How mortgage lenders actually calculate how much you can borrow

The reality is that a mortgage lender is going to look at much more than your salary when it comes to approving a mortgage loan. This is why when you are looking to get a house, it’s important that you talk to a lender and submit a mortgage application to get pre-approved.

With a mortgage pre-approval, you can know exactly what your maximum loan amount can be, rather than trying to guess at a figure yourself that may end up being incorrect. This will also help your real estate agent find you homes that are suitable for your budget.

Credit score

Most lenders will consider your credit score in order to determine that you do not only have an income but how responsible you are with it and how reliable of a borrower you are. If your lender thinks you are a responsible borrower, they will be less likely to give you a loan.

Debt service

Lenders will also be looking at the amount of existing debt you own. A mortgage loan is kind of like a promise to pay back your money and the lender wants to know that you don’t have too many other debts to pay the loan you are taking out.

Mortgage interest rates

Mortgage rates will also affect how much you can afford and this is one part of the equation that you don’t really have much control over. Though you can help yourself get a better interest rate through a higher credit score or high down payment, for example, the underlying base rates that lenders charge are influenced by external factors.

It’s also worth considering that the bank will test your salary against an even higher interest rate in accordance with the mortgage stress test. This means that even if you can afford a certain level of mortgage now, the bank won’t necessarily give you that exact rate as they need to be sure you will still be able to pay in the event of significant rate increases…”

To read the full article, click here.

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