Before you start looking for your dream cottage or home in Muskoka, let’s find out how big you can dream. Knowing your true budget is the first and most important step in buying a home.
A cottage or home is a big purchase
It’s probably the most expensive thing you’ll ever buy, and there are lots of expenses you might not even know about. Some of them include:
Cost of buying a home = One Time Costs + Monthly Costs
One Time Costs
Down payment Legal fees Title insurance Inspection fees Property Transfer Taxes
Mortgage Utilities Maintenance Insurance Property taxes
Everybody’s total costs are different, but it’s almost guaranteed you won’t have that much money saved up. Hopefully you have enough for a nice down payment, but for the rest…
Yes, you need a mortgage. So determine how much a bank will lend you
The first step in determining how much a bank will lend you is to understand how much you can afford each month. This is determined using two lending principals.
Gross Debt Service Ratio (GDSR) calculation:
This lending principle simply states that your monthly housing cost should not exceed 32% of your gross monthly family income.
Total Debt Service Ratio (TDSR) calculation:
This lending principle summarizes that your monthly housing cost and payments on all of your other debts (including loans, credit card and lease payments) should not exceed 40% of your gross monthly income.
Any budget calculator will help you easily estimate your maximum affordable mortgage payment of principal and interest. Just enter your monthly income and expense amounts, and the calculator will do the rest.
Once you have figured out your budget to estimate your maximum monthly total, you can compare this number to the mortgage payments for specific loan amounts.