Step 2.

What can I afford in a mortgage?

Important Note:
(Let me say that you will need about $1500 or higher to close the deal. This will be for land transfer taxes and legal fees as well as other soft costs when closing).

Once you have decided how much money you have on hand and use that as a 5% to 25% (or more) down payment, then it is easy to figure out what will be 100% of the Purchase Price. A word of caution here. Remember that institutions have mortgage officers who are people like yourself. Some are warm and understanding and play in a human world. They will look at you as a person who is genuinely serious about buying and paying for a home. Then you run into the mortgage officer who does everything by the book. There is no room for a human element and therefore if the numbers aren't there, there is no way on God's green earth that you will get a mortgage from this person, or else they will make it very hard for you to get that little extra for the right home. If you see this in the person at your bank, call me and I will give you the names of several people who are more human and understanding.

Let us start with a hypothetical number and work through it from there.

Calculation of GDS (Gross Debt Service )
 

Income	=30%	=GDS
Principal +Interest + Taxes			(This is sometimes done in reverse by many institutions.)

This gives you what in the marketplace is known as your Gross Debt Service amount for mortgage workup (GDS ratio is almost always 30%). This is used by almost all financial institutions. Some institutions say this is the law and others are a little more flexible and can stretch this a little to as much as 32%. This figure will be the total amount of money that the institution will allow you to use yearly towards a home.

Take your total gross income , (spouse or friends if they are involved), e.g.. $70,000 and then take 30% of that figure,
$70,000X 30%(.3)^* = $21,000
*(Multiply by 30% gives you the amount per year towards principal interest and taxes).

From this point you divide by 12 months;
$21,000 / 12 =$1,750/month.

Taxes are for this hypothetical property example are $2,400 per year. This means that they are about $200 per month. (Taxes vary according to the property and the municipality).
$1,750 - $200 = $1,550 per month for Principal and interest payments.

This translates into a mortgage of about $221,000.(How I got this figure is not a secret, but it is hard to show here. I have a calculator for this purpose.)

If you have 25% down, you will be able to buy a home valued at about $300,000.

For your convenience, I have a calculator (courtesy Netscape) that will give you a quick idea of what your GDS amount will be. All you need to do is substitute your own figures for the above and you should be able to come up with a value for your situation. There are an infinite number of variables here that you may not be taking into consideration. Those you will need to discuss with either your agent, mortgage officer or call me and I can quickly give you some more ideas.

A few notes before you begin.
The final figure the calculator returns is not exact, it seems to be out by about $10 per month, when I get a better and more sophisticated one, I will install it.)
So go to the Calculator page (Menu page - Calculator) and do the calculation for yourself.
Once done, you can carry on to some more ideas.
 
 

 Ernie Hills 00.