Financial Planning Q 'n A

How much of a mortgage can I afford?

All financial institutions have their own criteria for the amount of financing they will provide, based on your family’s income, expenses and debt. There are several rules of thumb which are used, dealing with ratios of monthly debt service costs to income which can assist. Most institutions will pre-approve you for a specified amount prior to your shopping for a home. Additionally, the larger institutions have calculators available on their websites to give you an idea of the house you can afford. Private lenders may allow for larger mortgages as compared to traditional lenders. These mortgages are usually available for an increased interest charge.

One should be cautioned however when using a pre-approval amount when shopping for a home. This is the financial institution’s criteria and it does not consider your lifestyle choices. If for example it is important for you and your family to spend a higher than average amount on family vacations each year or you would like spend a significant amount of money furnishing your home, you would want to consider a mortgage lower than the maximum available to you. Family budgeting is key to know where you wish to spend your money, not just what is available to you.