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What You Can Afford May Surprise You!

While condo buyers routinely spend a lot of time weighing different locations, deciding on how much space they require, and even measuring the distance to schools and/or work, few looks at purchase price as something that requires thought. The main reason being that most have an idea of how much they can afford and that's that. In actuality however, what you can afford may surprise you.

Imagine, as an example, Lucy was looking at $300K as her bottom line for a townhouse in Toronto West. Roughly, her monthly mortgage payment would run $1500. Now there are a few town-homes closer to $315K that Lucy finds more suitable, yet she feels they're beyond her grasp. While Lucy might be right, she should know the full story. The difference on her mortgage would be roughly $75 per month - a stark contrast  to the $15,000 apparent difference, on the surface. The difference on a 5% down payment would be $750, easily attainable if she waits a few extra weeks. Also, if Lucy were choosing a variable rather than fixed rate, her savings could run $50-$60 per month. How "out of reach" is the $315K really?

This is not to suggest that you can increase your bottom line by $15,000 without batting an eyelash, or that variable is definitely the way to go. It is, however, important to understand all avenues of financing your home so that you can make the best decision for you.

To use another example, Anthony is considering a condo for $250K. The maintenance fees are $400, including utilities. It would be worth Anthony's while to find out how much he'd be paying for utilities if it wasn't a set amount, especially since my experience has shown that $150-$250 per month, for utilites, is very reasonable considering the size and type of home that applies to this scenario. If Anthony assumes the middle figure of $200, that would be an additional $200 per month he could afford on a mortgage payment. That's an increase of $40,000 in purchase price! Depending on where Anthony is planning to move, a purchase price of $290K could afford him a freehold townhouse.

The point here is not to increase your purchase price to something that you aren't comfortable with. The point is to understand that a difference of even $40,000 in purchase price can be, virtually, negligible - and most importantly to understand why. Knowledge is knowing you can buy a mansion with a million dollars. But wisdom is knowing how and why you can buy a home with much, much less.

Amit Paul
Resale Condos

Posted on Wednesday, May 30, 2007 at 06:11PM by Registered CommenterElaine in | CommentsPost a Comment

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