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RE6 - The Canadian Champion, Tuesday, September 1198 g ta e e Your dream home becomes a nigtae. ... when you end up "bouse pooe" with most of your money going to pay for thc mortgage and lttie eft over for enjoyment. When buying a home, you need to be practical and realistic. Over-extending yourself financial- ly is tie quickest way to destroy the excitemient of owning your own home: A real estate profe#- sional can hebp you find the home of your dreams; a realtor can also assist you ini evabuat- ing mortgage options and obtaining financing at Uic most attractive prevailing rate. In the mean- time, here are some ways to detenuine your "affordability quotient" Setting a maximum price range is more impor- tant than simply establishing an upper price limit because unanticipated costs coubd push youinto the "house poor" danger zone. To detenuine your affordahbity price range, you must calcu- bate two amounts, Uic amount of cash you can afford to put towards the purchase (the down payment) and the maximum amount of boan A mortgage covers the difference between the purchase price and your down payment. The larger the down payment, the Iess you have to borrow, the smaller your monthly mortgage pay- ment and the lower your cost of interest over the tenu of the mortgage. So it probably makes sense to put down as much of your own money as possible. * You should keep a cash reserve for ire unexpected expenses and such typical tur- "post piirchase"' expenses as land transfer ni, tax, legal fees, mortgage arrangements, vth moving expenses, new furnishings and de appliances. loi The first step towards establishing a el maximum mortgage limit is to calculate a ~99. monthly payment you can afford. Financial institutions do this by calculating your debt-service ratio. To calculate your debt-service ratio, list 4.ail your boans (car, personal boans, month- k ly credit card balances). The sum of these boan payments and your mortgage pay- ment (including principal, interest and taxes) should not exceed approximately 40 per cent of your gross income. The mort- gage payment and taxes should not exceed approximately 30 per cent of your gross Iincome. S The size of the mortgage you can Iarrange, based on payments you can afford, depends on interest rates. The lower the rates, the larger the possible mortgage and the more affordable the housing is. But there are other mortgage tenus to consider as well. How open is the mort- gage? Would prepayment be allowed? Is Uic mortgage affordable? Discuss your mortgage options with a realtor, your banker or a financial advisor. Establish a limit and stick to it. The usual source of mortgage funds is a lending institution that determines the maximum boan allowed. But there are other sources of funding, too and a realtor can help you choose Uic best lender at the best rate and terns. I~ 876-0107 1 1 - . 1 Il iý , 1, 1