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Buyer Resources - Articles

Buying Your Home - What You Can Afford

How much does my real estate agent need to know?
Real estate agents would say that the more you tell them, the better they can negotiate on your behalf. However, the degree of trust you have with an agent may depend upon their legal obligation. Here is a summary of three basic types of representation in a Real Estate transaction:
* In a traditional relationship, real estate agents and brokers have a fiduciary relationship to the seller. If you choose to not be represented in your purchase, you will have a no agency situation, which is cautioned against - for good reason! Would you not rather have someone representing your best interests, who is legally and ethically bound to do so?
* Dual agency exists if two agents working for the same broker represent the buyer and seller in a transaction. This is now against the law, and it is always recommended that you have an agent representing your own interests.
* A buyer can hire his or her own agent who will represent the buyer's interests exclusively. If you would like to know more about buyer's agency, please give me a call at 604-809-5410.


What is the standard debt-to-income ratio?
A standard ratio used by lenders limits the mortgage payment to 28 percent of the borrower's gross income and the mortgage payment, combined with all other debts, to 36 percent of the total. The fact that some loan applicants are accustomed to spending 40 percent of their monthly income on rent -- and still promptly make the payment each time -- has prompted some lenders to broaden their acceptable mortgage payment amount when considered as a percentage of the applicant's income. Other real estate experts tell borrowers facing rejection to compensate for negative factors by saving up a larger down payment. Mortgage loans requiring little or no outside documentation often can be obtained with down payments of 25 percent or more of the purchase price.

What can I afford?
Know what you can afford is the first rule of home buying, and that depends on how much income and how much debt you have. In general, lenders don't want borrowers to spend more than 28 percent of their gross income per month on a mortgage payment or more than 36 percent on debts. It pays to check with several lenders before you start searching for a home. Most will be happy to roughly calculate what you can afford and prequalify you for a loan. The price you can afford to pay for a home will depend on six factors:
1. gross income
2. the amount of cash you have available for the down payment, closing costs and cash reserves required by the lender
3. your outstanding debts
4. your credit history
5. the type of mortgage you select
6. current interest rates

Another number lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes and insurance. If you have to pay monthly Strata fees and/or private mortgage insurance, those could also be added to this total. This ratio should fall between 28 to 33 percent, although some lenders will go higher under certain circumstances. Your total debt-to-income ratio should be in the 34 to 38 percent range.

When is the best time to buy?
Here are some frequently cited reasons for buying a house:
* You need a tax break. The mortgage interest deduction can make home ownership very appealing.
* You are not counting on price appreciation in the short term.
* You can afford the monthly payments.
* You plan to stay in the house long enough for the appreciation to cover your transaction costs. The costs of buying and selling a home include real estate commissions, lender fees and closing costs that can amount to more than 10 percent of the sales price.
* You prefer to be an owner rather than a renter.
* You can handle the maintenance expenses and headaches.
* You are not greatly concerned by dips in home values.

Where do I get information on housing market stats?
A real estate agent is a good source for finding out the status of the local housing market. We have access to all of the updated sales statistics in the neighbourhood you are looking at.


Madeleine Wareing
Madeleine Wareing
Associate
#290 - 3631 No. 3 Rd Richmond BC V6X 2B9