Chances are, if you’re looking at Fort McMurray real estate, you’re thinking about mortgages. Buyers’ most common questions are “how much can I afford” and “should I get pre-approved?”
How Much Can I Afford?
Mortgages have many factors. When buying a home, determine the type of home you’ll like and how much you can afford before beginning your search. Most lenders allocate approximately 28% of your GROSS MONTHLY INCOME to housing expense. Housing expense includes principal, interest, taxes and insurance (PITI). To calculate how much your monthly payment should be, multiply your gross monthly income by 28%.
When coupled with current outstanding loans, the total for your debt service should not exceed 36% of your gross monthly income. Some lenders may have slightly more liberal requirements or loan interest rates which may increase your purchasing power.
Mortgage interest, property taxes, loan fees or “points” are currently tax deductible (up to allowable limits). You can generally deduct points in the year when you paid. A point equals 1% of the mortgage amount. If you are in the 28% tax bracket, then this is like receiving a 28% discount on your mortgage interest and property taxes. During the first years of the mortgage your tax savings are especially high because most of your monthly payment goes toward loan interest.
Mortgages & Pre-Approval
Most mortgage lenders take the guess work out of applying for a loan by determining for you the amount you can afford to borrow. Then, they give you a printed document stating the maximum mortgage amount you qualify for based on your particular finances and income.
Mortgage pre-approval establishes your price range and strengthens your buying position by letting the seller know that you have already been approved for the loan. It can also ease time constraints once the purchase agreement is signed between buyer and seller.
Consider these Scenarios
You’re out looking at homes. Your Real Estate Broker never mentions that you should get pre-approved and ballparks what you can afford. Then you find the perfect house and work out a deal with the seller. Three weeks later, the lender informs you that the house is $10,000 over what you qualify for and does not approve your loan. Next you discover the seller has already bought another house. You’ve given notice where you’re renting and told all your friends about the great house you bought. And then there’s the money you’ve already spent on inspections on a house you can’t own.
You and your REALTOR® have been working diligently finding that “perfect” home. A new listing comes on the market that’s priced right and has got everything you’ve been looking for. You write an offer. Your REALTOR® takes it to the listing REALTOR® and is informed that another offer is coming in and will have to present both offers simultaneously to the Seller. The other Buyer is pre-approved for his loan. Whose offer do you think the seller will negotiate first?
The Agents at Coldwell Banker United can guide you through the preapproval process. Contact us today and start the journey towards buying your dream property.