What Mortgage Amount Can I Afford?

If you are thinking about buying a home, one of the first steps is finding out how much you can afford.

You should do this before you invest your time in searching for a home in Guelph or the surrounding areas. Here are a few simple rules that lenders follow. Most lenders allocate approximately 28% of your GROSS MONTHLY INCOME to housing expense. Housing expense includes principal, interest, taxes and insurance (PITI). To get an idea of how much you can afford to pay each month for a home, multiply your gross monthly income by 28%.

When added with current outstanding loans and debts, the total for your debt service should not exceed 36% of your gross monthly income. Some lenders may have slightly more liberal requirements or loan interest rates which may increase your purchasing power.

Mortgage interest, property taxes, loan fees or “points” can be tax deductible (up to allowable limits). Points are generally deductible in the year paid. A point equals 1% of the mortgage amount. If you are in the 28% tax bracket, this is equivalent to receiving a 28% discount on your mortgage interest and property taxes. During the first years of the mortgage your tax savings are especially high because most of your monthly payment goes toward loan interest. (talk to your tax consultant for the details).