Your lender decides what you can borrow but you decide what you can afford.

Lenders are careful, but they make qualification decisions based on averages and formulas. They won’t understand the nuances of your lifestyle and spending patterns quite as well as you do. So, leave a little room for the unexpected – for all the new opportunities your home will give you to spend money, from furnishings, to landscaping, to repairs.

Historically, banks use a ratio called 28/36 to decide how much borrowers could borrow. An approved housing payment couldn’t be more than 28 percent of the buyer’s gross monthly income, and his or her total debt load, including car payments, student loans, and credit card payments, couldn’t be more than 36 percent. (In Canada lenders apply similar formulas to determine how much a buyer can afford. The Gross Debt Service ratio, or GDS, is not to exceed 32 percent of the buyer’s gross monthly income, and the Total Debt Service ratio, or TDS, is not to exceed 40 percent of the buyer’s total debt load.) As home prices have risen, some lenders have responded by stretching these ratios to as high as 50 percent. No matter how expensive your market though, we urge you to think carefully before stretching your budget quite so much.

Deciding how much you can afford should involve some careful attention to how your financial profile will change in the upcoming years. In the long run, your own peace of mind and security will matter most.

Before the home search begins, your real estate agent will want to know as much as possible about the features and amenities you desire. To help your agent better serve you, analyze what you want and what you need in a home’s features and amenities.

Age: Do you prefer historic properties, or newer ones?
Style: Do you have a special preference for ranches, bungalows, or another style of construction?
Bedrooms: How many?
Bathrooms: How many? Are they updated?
Living and Dining Areas: A traditional, formal layout, or a more open, contemporary plan?
Stories: How many?
Square feet: How much space?
Ceilings: How high?
Kitchen: How big? Recently updated? Open to other living areas?
Storage: Big closets, a shed, an extra-large garage?
Parking: A garage or carport? Room for how many cars?
Extras: Attic or basement?

Office
Play/exercise room
Security system
Sprinkler system
Workshop/Studio
In-law suite
Fireplace
Pool
Hot tub
Sidewalk
Wooded lot
Patio, deck, or porch
Laundry room

Where you buy not only affects the home’s current and future value, but it also affects your lifestyle. Your agent will be able to conduct a more targeted home search if you outline your preferences in neighborhoods and nearby amenities. Here’s a checklist of items you should consider and communicate to your chosen real estate agent.

• Urban, suburban or rural
• Commute time
• School districts
• Desirable neighborhoods
• Proximity to the airport
• Proximity to restaurants and retail
• Access to major highways and thoroughfares
• Access to public transportation
• Health care facilities
• Parks and recreation
• Length of time you plan to live in the home (Your agent should be knowledgeable about growth trends and projections that could affect your investment.)

Nearly all of today’s home purchase contracts include a home inspection contingency clause, which is a provision allowing the buyer to hire a professional home inspector to thoroughly evaluate of the house and determine if there are any issues with its structure or systems. Once a purchase contract has been signed, the buyer can book a professional inspector of their choosing, whom they may or may not accompany during the two- to three-hour inspection. A typical home inspection includes a check of a house’s structural and mechanical condition but can also encompass tests for radon gas, detection of wood-destroying insects and other services requested by the buyer. Back in 1976, the American Society of Home Inspectors (ASHI) standardized the home inspection process and established Standards of Practice dictating what must be inspected as well as how far the professional home inspector needs to go to report their findings. According to ASHI, the ten critical areas for inspection during the process are the structure, exterior, roofing system, plumbing system, electrical system, heating system, air conditioning system, interior, insulation and ventilation, and fireplaces. Once the home inspection is complete, the inspector creates a report for the home buyer detailing all that was found. This report will note problems requiring immediate attention and conditions that could lead to more serious issues over time.