How Much of a New Home Can You Afford?

If you’re thinking of shopping for a new home, one of the first considerations

is price range. You want to know what you can reasonably afford.

How do you figure that out?

First of all, you need to determine the initial out-of-pocket costs you will

need to cover. There are often more costs associated with purchasing a

home than its actual price. You need to take into account such additional

expenses as moving costs, legal fees, and a home inspection, not to

mention the costs of prepping your current property for sale.

Experts say you should budget 5-10% above the purchase price for these

items. So if you can afford to spend $470K on a new home, you should be

shopping in the $425-445K range.

Another factor to consider are the potential proceeds from the sale of your

current home. Your REALTOR® can help you determine how much your

property will likely sell for in today’s market. Any existing mortgage will need

to be subtracted from that amount to determine how much cash will be left.

Of course, you should speak to a mortgage broker or lender who can

compute how much of a mortgage you qualify for. Remember, qualifying for

a big mortgage doesn’t necessarily mean you should have one. You also

need to consider your personal finances and desired lifestyle – and whether

or not having a large mortgage is a good idea for you.

Once you have gathered all of your information, you can add any potential

sale proceeds to the amount of mortgage you qualify for, add other sources

of cash available for this purpose and subtract 5-10% for initial expenses,

and you’ll have an idea of the price range you should be considering.

Finally, it’s important to take the time to decide what kind of home you want.

Do you want a large backyard with trees? A quiet, family-oriented

neighbourhood? Four bedrooms and a finished basement? Once you

decide what you want most in a new home, it becomes much easier to find

one that’s in your price range.