Understanding Your Mortgage Budget
Last time, we talked about the difference between pre-qualification tools, pre-qualifications and pre-approvals. We also briefly touched on the importance of managing your spending after you are pre-approved to avoid any hiccups in your mortgage journey. But there’s one more piece about understanding your mortgage budget, especially if you’re buying in a high-priced area like Canmore; the other costs NOT associated with your mortgage.
Knowing Your Limits
During the pre-approval process we’ll talk about two factors that affect how much mortgage you can afford; Gross Debt Servicing (GDS) and Total Debt Servicing (TDS) Ratios.
Most lenders recommend your housing costs should only be at or less than 39% of your gross monthly income, including mortgage payments, utilities, and condo fees and property taxes. This is your GDS Ratio. Your recommended TDS amount, which includes any other debt payments plus your GDS, should be at or less than 44% of your gross monthly income.
Ideally, I don’t want you to buy at the very top of your budget. You’ve probably heard the phrase ‘buying too much house?’ That’s what happens when you buy at the very top of your budget. Although you can afford the house now, what will that look like in the future?
Many homes in Canmore have a condo fee, a cost that’s not included in your monthly mortgage payment. While your mortgage payment will likely stay the same (depending on your interest rate), your condo fees will likely go up with time.
You’ll likely take on debt later on, whether in the form of a credit card or car loan. Combine all these factors with just the higher prices of living in the mountains, making that mortgage payment just got a little harder.
Also, consider your family plans. Do you plan to have kids? And if you do, do one of you want to stay home? It's good to have this conversation when buying a home to make sure you have the ability to make these choices down the road.
How Do You Determine What to Buy?
When it comes to successful budgeting for a home, it's all about the plan. Buying a home in Canmore isn’t just about budgeting for the cost of the house itself, but about your desired lifestyle.
Do you want to travel more and be at home less? Will you be working from home? Are you wanting to save for retirement? Are you going to have lots of guests over? Probably, it is gorgeous here after all!
The lifestyle you want to have is perhaps more important than the size of the house. You do not want to spend money on a larger and more expensive house than what you actually need if you can save your money for more trips or other luxuries!
Don’t Forget The One-Time Costs
Aside from the down payment, there are a couple of other one-time costs that occur before you get into the house.
House Inspection and/or appraisal
Legal fees to transfer title and register mortgage
Movers or moving trucks
Cleaning costs or repairs
Real Estate commissions (if selling)
Mortgage Penalty (if breaking mortgage term)
Land transfer Taxes (if purchasing in BC)
So, What Does YOUR Budget Look Like?
At the end of the day, everyone's budget is different and it's all about your plan. What do you want from a home in the mountains?
There are many free tools and worksheets available to begin creating a budget, making sure that you can work with your mortgage and lifestyle. A budget is a great tool to ensure that you are on track and keep it that way.
If you need some advice on budgeting with (or without) a mortgage, message me today! I always love to chat about budgets, mortgages, and how to make them both fit your lifestyle.