Buying a house is a big deal, so you need to know about your mortgage affordability. If you are interested in having a new home, you should wonder about facts like- “How much mortgage can I afford with a 65k salary?” Here, you will get in-depth information about all the things you need to know. So, let’s start our journey!
Key Factors That Determine Mortgage Affordability
There are some key factors like debt-to-income ratio and some other things you need to know. Here, take a look at them:
Gross Debt Service (GDS) Ratio
This shows how much of your income goes for housing costs. It includes mortgage payments, property taxes, and heating. Your GDS should be between 32% and 39% of your total income before taxes.
Total Debt Service (TDS) Ratio
With this ratio, you will know how much will go for your monthly debts and housing costs. This includes credit card bills, car loans, and mortgage payments. It should be between 40% and 44% of your total income before taxes.
Credit Score
A strong credit score increases your chances of getting mortgage terms that you like. You should have a minimum credit score of 680 to qualify for a mortgage.
Down Payment
The amount of your down payment will affect your mortgage affordability. Here are the requirements for it:
- 5% for homes priced up to $500,000.
- 10% for the home price between $500,000 and $1 million.
- 20% for homes priced over $1 million.
Mortgage Stress Test
You must qualify for a mortgage at a higher rate than your actual rate. This makes sure you can still pay if rates go up. The test rate is 5.25% or your lender’s rate plus 2%, whichever is higher.
Mortgage Calculation for a $65K Salary
Are you still searching “How much mortgage can I afford with a 65k salary?” Then here’s your answer. Using the mortgage affordability calculator will make things easier for you.
- Monthly Gross Income: $65,000 ÷ 12 months = $5,417.
- Maximum GDS (35%): 35% of $5,417 = $1,896. This is the highest amount suggested for your monthly housing expenses.
Estimating Mortgage Amount:
- Down Payment: Suppose you’ve saved a 10% down payment.
- Interest Rate: Now use a 5-year fixed rate of 5.25% for this example.
- Amortization Period: Standard 25 years.
All of this information will help you find out the answer you’re seeking. So using these, a mortgage calculator shows that you can afford $400,000 priced houses. Here’s the breakdown:
- Home Price: $400,000.
- Down Payment (10%): $40,000.
- Mortgage Amount: $400,000 – $40,000 = $360,000.
- Monthly Mortgage Payment: Approximately $1,900.
What Are the Additional Costs to Consider?
Even if you know what you can afford, there are still some costs that you need to consider. For instance:
- Property Taxes: These taxes mainly depend on where you live. They are usually between 0.5% and 2.5% of your home’s value each year.
- Homeowners Insurance: Home insurance costs between $700 and $1,200 per year. It depends on where you live and what it covers.
- Utilities: Each month the electricity, water, and heating can cost you $300 or more.
- Maintenance and Repairs: Save 1% of your home’s value each year for repairs. If your home is priced at $400,000, then save $4,000 yearly or about $333 each month for maintenance.
- Condominium Fees: If you buy a condo, you may pay $200 to $600 a month for maintenance and amenities.
Conclusion
Buying a home is a dream come true, but before that, you need to have an idea about mortgage affordability. You need to know things like Canada mortgage rates or how much mortgage you can afford with a 65k salary. With this guide, the road will be easier for you as you will know a lot of information.
