How to Calculate Your Home-Buying Budget
Good news for Canada; RBC Economics is reporting that the overall the country’s real estate is becoming more affordable. Despite the fast-growing prices in Toronto and Vancouver, Canada’s still seeing a slight increase in affordability for real estate.
RBC Economics is basing this off of lowered utility costs, lower interest rates and rising household incomes. These factors have made it easier for people to enter the market and Edmonton is one of the city’s seeing real estate becoming easier to afford. Here is a look at the situation in Canada right now.
For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.
Why Are Homes Becoming More Affordable In Canada
The biggest contributors to making homes more affordable are as mentioned lower interest rates, increase in households incomes and lowered utilities. Many people are going “green” and building or buying energy efficient homes that save you money with utilities and energy costs.
They also serve to lower heating costs because they are better insulated and many use programmable thermostats to save on heating costs when they aren’t home or they are asleep.
In addition, the Canadian Real Estate Association is quoting an increase since October 2013 of 7.1%. MLS home price index is posting price gains of 5.5% over the year before.
Why Some Argue the Affordability is Slipping Away
Others disagree that home affordability is slipping away because homes have slightly risen in price throughout western provinces. In reality, when you take Calgary and Vancouver out of the equation, affordability is increasing. These cities have seen huge growth beyond the national average which makes sense to have home pricing increase. The rest of the markets have only seen slight or moderate growth.
How to Calculate Your Home-Buying Budget
Before you start shopping for a new home in Edmonton, it's important to know what you can afford. By calculating your home-buying budget, you will know how much house you can fit into your overall budget. Here are the steps to take if you want to calculate your home-buying budget before you starts shopping.
Look At Your Current Housing Expense
If you're renting, look at the payment compared to your overall net income. This percentage should stay below 25% of your overall budget. It's even better if you can make the 25% include your utilities.
However, when you use this to figure your home-buying budget, you have to take it a step further. The 25% needs to include home insurance and taxes. If you go above 25%, you may be setting yourself up for a home you cannot really afford.
Consider Your Amortization Period
The length of your mortgage is very important to your home-buying budget. The longer the mortgage, the lower the payment and the more you will pay, overall, for the home.
It may be smart to choose a longer amortization period, but pay extra on each of your monthly payments. This will shorten the length of the mortgage and save you on the interest without providing a higher payment.
Get Pre-Approved for a Mortgage
A pre-approved mortgage will show you exactly what you can afford, according to the mortgage company. However, this should only be used as a guide and you may not want to go as high as your pre-approved amount. Make sure it fits into your overall budget and isn't more money than you want to pay each month.
After calculating the amount your monthly payment should be (25% of your net income or less) and getting pre-approved for a mortgage, you can start shopping for a home. This is a big decision and it's smart to make sure you have a sizable down payment, along with three to six months of your housing payment and bills saved for an emergency before buying a new home.
The market remains strong with the drop in fixed mortgage rates and the gradual rising incomes in the west make living here more affordable. In conclusion, with a solid growth trend, Edmonton home buyers are seeing affordability improving and it’s a great time to get in the market.
For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.