Affordability is a measure of a borrower’s ability to afford a house.
It is usually expressed in either one of three ways, or any combination of the 3.
The maximum price is the highest price a home buyer can afford to pay for a house after taking into account the maximum loan amount that he qualifies for.
The difference between the two will have to be topped up with cash.
The maximum loan to value is the maximum percentage of a property’s value that the bank will be willing to loan the borrower.
This limit is usually imposed by government policies.
Combined with max price and max loan amount, a borrower’s affordability might be a loan approved up to $$400,000 at 80% LTV, translating to a maximum property purchase price of $500,000.
The maximum monthly installment amount refers to the maximum monthly installment that the borrower can afford with his income.
This is determined after factoring debt ratios including TDSR guidelines.
The rule with affordability is that people should need someone else to tell them that they cannot afford a house.
If you are not totally comfortable in buying a house at a specific price, the odds are that you can’t afford it.
In this case, it’s better to buy a smaller house or wait until you have a higher personal or household income.
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