It can take a lot of time, energy, and emotion when you’re trying to find the perfect home for you and your family. That’s why when you’re looking at houses for sale in Nanaimo it makes sense to know if you can afford what you’re looking at before you start looking.
Here are 3 ways to know if you can afford that home for sale in Nanaimo, plus 6 red flags to watch out for.
#1 Get your mortgage pre-approved
Getting your mortgage pre-approved means giving your lender all the documentation they need to perform a check on your financial situation and credit. After that, they’ll give you a pre-approval letter with the maximum home price you’re approved for.
Oftentimes, buyers are surprised at how high of a home price they’re pre-approved for.
However, that doesn’t mean you should buy a house at the maximum pre-approval price. That’s because banks are in the business of making money from interest and fees, so the more home you buy the bigger the lender’s profit will be.
#2 Calculate how much house you can afford
Using your pre-approval as a guide, calculate how much the houses for sale in Nanaimo you’re looking at will actually cost you. After all, you’re the one paying the bills, not the bank.
Follow these steps to calculate how much house you really want to afford:
- Start with 100% of your gross monthly income
- Use the 40% rule as a maximum for your total monthly debt payment – including your new mortgage plus any existing debt like car payments, tuition, or credit cards
- Use the 32% rule as the maximum total housing payment – including your mortgage plus utilities, home repairs, and association fees
- Use the 28% rule to figure out your maximum mortgage payment
- Gross monthly income = $6,000
- Monthly debt payment = $6,000 x 40% = $2,400
- Maximum housing payment = $6,000 x 32% = $1,920
- Maximum mortgage payment = $6,000 x 28% = $1,680
#3 Put your budget together
Lastly, decide what the monthly mortgage payment is that you’re comfortable with. In the above example, even though you can afford a monthly payment of $1,680, it doesn’t necessarily mean you should.
6 red flags to watch out for
Buying a home in Nanaimo is an important step toward building your net worth and creating financial freedom. However, buying a home that’s too big and more than you can afford can become a burden and a source of stress for you and your loved ones.
Here are six red flags to watch out for that might mean you really can’t afford the house you’re about to fall in love with:
- Home is a budget-breaker and will put a strain on your finances
- You assume future income will be higher than it is now, and expenses won’t change
- Coming up with the down payment is a struggle
- Interest rate is higher than normal because the lender thinks you may be a risky borrower
- You’re buying with your heart and not your head, allowing emotions to get in the way of a smart investment decision
- Mortgage terms are unusual, or you can only get pre-approved for a non-traditional mortgage
Don’t let your home control you
It’s important to be honest with yourself about what you can really afford when you’re buying ahome in Nanaimo. When you do, you’ll have a home you can afford and mortgage that you control, instead of letting your home control you.
Remember, buying a home is the biggest financial decision that most people will ever make. It provides a sold foundation for you and your family and is an important step in your financial health.