How Far Can Your Income Take You?!

You can be sitting at your rental apartment right now thinking about all the bills you have coming up in the next few days…Monthly rent, car loan, student loan, car insurance….Suddenly it dawns on you how rich you are making your landlord every month when you pay a big chunk of your pay check to him!!!

Ever wonder how much you can afford to buy with the money you make?

There are many different factors that would determine the answer to that question:

1.  Your Income:  Figure out your annual gross income (before taxes).

a.       If you are getting paid on an hourly rate – ie: $15/hour & you work a minimum of 40 hours per week then $15 times 40 times 52 weeks in a year = $31,200

b.      If you are working two part time jobs that don’t guarantee you minimum hours per week then you need to find your last two year’s notice of assessments (what revenue Canada mails you after you file your income taxes) – ie: in 2007′s Notice of Assessment line 150 shows annual gross income of $32,000 and your 2008′s shows $40,000, then you need to take the average!!! ($32,000 + $40,000) divided by two = $36,000

c.       If you are self-employed then same situation applies as scenario (b).  You need to make sure you have been self employed for two full years so you can take an average and that would be the income acceptable by mortgage lenders.

2.  Your Monthly Debts: Figure out your exact monthly “minimum” payments due on each loan, credit card and line of credit that you currently owe balances on. Write them down on a piece of paper and add them all up!!!

3.  Current Qualifying Interest Rate: Find out the current going five years fixed rate for a mortgage and write it down.

4.  Find a Reliable Mortgage Qualifier Calculator: You can use this one for free – here For property taxes just assume $2,000 & minimum monthly heating cost assume $100.  For amortization, the higher the more you would be qualified for, currently 35 years amortization is the maximum.

Now that you have an approximate figure to work with, don’t start looking at homes yet!!! You need to get yourself a mortgage pre-approval to ensure accuracy and note that other factors would still determine if you would be qualified for a mortgage such as your credit history.