Buying a home is a very large investment and it is important to consider your method of payment options. If you are able to pay in cash, we would still encourage you to meet with your financial planner and a mortgage lender just to make sure that securing a mortgage isn't a better use of your funds particularly in a low interest rate market. If you are using a mortgage loan, your loan payment will typically be your largest payment each month. To ensure that you don’t overcommit and buy something that you really can’t afford there are couple of guidelines you can follow.
- A general rule of thumb is that a homebuyer can afford 3-3.5 times their annual salary/income.
- Your total monthly expenses including your new home, should never be above 45% of your gross (pre-tax) income. 35% or less is ideal. It is recommended to add up your monthly expenses prior to visiting a mortgage lender. Please remember to include reoccurring monthly and annual expenses including utilities, student loans, car payments, insurance, kid’s programs, memberships to gyms and apps, etc.)
- Just because you can afford a large monthly mortgage payment, doesn’t mean you should. It is crucial to have money left over each month for college savings, retirement savings, and funds for emergencies such as loss of income due to the Covid-19 shut-down in 2020 or unexpected medical needs.
- Similarly, just because you can afford a large down payment doesn't mean you should. While there was a time that 20% was commonplace, substantially lower down payments are required today. It may be to your advantage to save on your downpayment and prioritize your funds where they can be better served.
Click Step 2 of buying a home for more details on how best to buy a home and find a mortgage lender.