Housing Recovery? We May Have To Wait…
Pre-Approvals: Helping You Determine How much Home You Can Afford
In the last blog post, the booming spring real estate market was discussed. With a change of winds and more sunshine, spring may have you considering the next chapter in your life. With your heart set on a change of scenery, a burgeoning family, or an upgrade for your kin, buying a new home is as much a financial consideration as an emotional one. No matter to which precludes the other, it will eventually come time to sit down and crunch numbers.
Rob Carrick of the Globe and Mail fears that bankers have waived morality for a quick buck. We are born into becoming borrowers; This is the self-fulfilling role mandated by consumer society. The problem is that as the amount required for the necessities and luxuries grow, so too do the loans and subsequently, the debts. It would be naïve to forgo the understanding that banks are profiting from the money they lend, but the purpose of approvals guarantees the bank that they will indeed have the money (and interest) returned, while deeming the lender competent to repay this cost. The truth of the matter, is that as the burden of debt is normalized, banks are beginning to qualify those who may not actually be able to afford these mortgages – thus, abusing an unspoken trust in their power as gatekeeper to the fate of your future dwelling.
Perhaps these approvals are made in earnest, but there are many factors to take into consideration over the course of your mortgage repayment: A growing family, different career pursuits, daycare, vacations, cars, insurance, home and property maintenance – even unexpected illnesses are the known or unknown logistics that must be accounted for. Accordingly, as a homebuyer you have to be prepared to save a bigger down payment, live in a cheaper area, buy a smaller home, or accept that you may have to wait until the financials stabilize.
It is important that you rely on your own calculations of your current and future expenses and financial responsibilities, as opposed to having the bank review your situation from a removed perspective and estimate for you.
A general rule of thumb to gauge your ability to afford a home is if it remains within 2.5 the amount of your gross household income. Many banks have made their own “mortgage calculators” to approximate these figures for you, although they vary to different degrees. Carrick, with the counsel of financial advisors, created a calculating spreadsheet that is realistic.
Even still- this calculator does not factor in personality tendencies, lifestyle choices, and the daily budget that accompanies these qualities – especially entertainment and discretionary spending.
Once you have determined you are able to finance a home, pre-approvals are of great benefit. Pre-Approvals are a commitment from the lender to loan you the money (upon conditions such as property evaluations), so you can begin your house-hunting knowing your down-payment amount, monthly payments, and your total financial picture. Pre-approvals will afford you extra time- seeing only homes you can afford; Real estate agents will give you excellent service knowing you are committed to the purchase; This status may give you more negotiating power with a home-seller, and they will take offers you make more seriously.
With the help of a professional mortgage broker, I will help you find that perfect home!
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