Last Updated on 2023-02-24 by Tom
Buying a home can be an exciting but daunting process, especially if you’re a first-time homebuyer. You may be wondering how to navigate the homebuying process and what your purchasing power is. In this article, we will use the example of a family residing in Alberta with an annual gross income of $80,000 to demonstrate the general steps involved in buying a home and how our community experts can help you achieve your dream of owning your first home and beyond.
Below is the general steps to buy a first home for a family with a combined income of 80K.
- Determine Your Maximum Mortgage Amount
The first step in buying a home is to determine how much mortgage you can afford. To calculate this, you’ll need to consider your gross monthly income, debts, and other financial obligations. Assuming you have no other debts and a 20% down payment, your maximum mortgage amount would be approximately $320,000 based on a 32% GDS ratio and a 40% TDS ratio. - Determine Your Maximum GDS and TDS Ratios
Your GDS (Gross Debt Service) ratio is the percentage of your gross monthly income that goes towards housing-related expenses, such as mortgage payments, property taxes, and heating costs. Your TDS (Total Debt Service) ratio is the percentage of your gross monthly income that goes towards all of your debts, including your mortgage. To qualify for a mortgage, your maximum GDS ratio should not exceed 32%, and your maximum TDS ratio should not exceed 40%. Based on an annual income of $80,000, your maximum GDS ratio would be $6,667 x 0.32 = $2,133 per month, and your maximum TDS ratio would be $6,667 x 0.40 = $2,667 per month. - Consider the Interest Rate and Amortization Term
When calculating your maximum mortgage amount, it’s important to consider the interest rate and amortization term. The interest rate you receive will depend on the lender and the current market conditions. As a general guideline, the current (dated in Feb 2023) interest rate for a 5-year fixed term mortgage in Canada can range from 4.50% to 6.00% depending on various factors such as lender, credit score, down payment amount, and other factors. The amortization term is the length of time it takes to pay off your mortgage. Most lenders offer amortization periods of up to 25 years, although some may offer longer or shorter terms depending on their policies and the borrower’s qualifications. - Determine Your Purchasing Power
With a maximum mortgage amount of $320,000 and a 20% down payment, your total purchasing power would be approximately $400,000. This means that the maximum house value you could afford would be $400,000 with a down payment of $80,000 and a mortgage of $320,000. Keep in mind that the actual house value you can afford may depend on other factors such as your credit score, debt-to-income ratio, and other financial obligations you may have.
- Find a Home and Get Pre-Approved
Once you have determined your maximum mortgage amount and purchasing power, it’s time to start looking for a home. You can work with a real estate agent to help you find a home that fits your budget and meets your needs. Once you’ve found a home you’re interested in, it’s a good idea to get pre-approved for a mortgage. This will give you an idea of how much you can afford and make you a more attractive buyer to sellers.
The above is just a simple guide by using 80K annual income as an example to show you the standard process in a nutshell.
In our community, we have experienced local real estate experts who are ready to help you every step of the way. Here’s how we can guide you:
- Analysis of Your Current Financial Status: We will analyze your current financial status and help you create a budget that is appropriate for your new home. Our goal is not only to help you buy a home that meets your current needs but also to help you plan for the future. We can guide you on how to turn your first home into a rental property to help other tenants who are looking for a great place to live.
- Plan Ahead: Most first-time homebuyers look at their second home after 5-7 years. This is a great opportunity to turn your first home into an A+ rental property. Our experts can help you plan ahead to ensure that you buy the first home right, making it an attractive rental property in the future.
- Understand Current Market Trends: We will assist you in understanding the current market trends and provide you with a list of available homes that meet your criteria, whether you are looking for a single-family home, townhouse, or condo.
- Navigate the Complex Process: Our team of local real estate experts will help you navigate the complex process of purchasing a home. We will negotiate the purchase price, organize a home inspection, and handle all the necessary paperwork.
- Connect with Trusted Bank Specialists or Mortgage Brokers: We can connect you with trusted local bank experts, mortgage brokers and lenders who can help you secure the best possible mortgage rate and terms.
- Create a Flexible Renting Plan: We can work with you to create a flexible renting plan to cope with any necessary move-in condition changes.
If you are looking to buy a home in Alberta, our team of local real estate experts is here to help. Contact us today to schedule a consultation and get started on the path to homeownership.