Getting ready for one of the biggest purchases of your life can be both a stressful and exciting adventure. Preparing for home ownership requires a lot of planning, budgeting and smart decision-making. Here are three of the foremost things to consider once you make the decision to buy:
Preparing For Home Ownership
1. Know What You Can Afford
This sounds like an obvious one, but it is not always the easiest to determine. The first step to determining what you can afford is finding out what you can borrow. Go to your bank or lender of choice and find out what your options are. Lenders have formulas to determine the amount they feel comfortable lending, ensure you feel comfortable borrowing this amount, too.
You will know the maximum amount you can borrow, but just because you are approved for a $500,000 mortgage does not mean that you should take it. Consider all of your expenses. What can you afford to spend monthly on housing costs? What types of expenses will you have in the next five years? Overbuying on your first home can leave you house-poor and unable to live the lifestyle you want to live. When preparing for home ownership, do the math and attain a mortgage you can comfortably afford. Information on pre-approval and shopping for a mortgage.
2. Determine Your Needs and Wants
Most of us could describe our perfect home without hesitation–the location, the size, the style… but which of these elements are ‘must-haves’? Our vision of a perfect home will usually be comprised of the things we need (a home big enough to suit our family’s needs, a location close enough to work or schools, a home with a yard for our three large dogs, etc.) and the things we would simply prefer (a home in a trendy neighbourhood, a kitchen with modern appliances, a big yard with a swimming pool, etc.).
Make a list identifying the elements of your perfect home and share this list with your REALTOR®. Together, decide which of these are ‘wants’ and which are ‘needs’. Your REALTOR® will take these must-haves and help to narrow down your search. Be honest about your needs–if you are too picky you will miss out on many amazing suitable homes and if you are not picky enough, you will end up sorting through dozens of homes that you ultimately will not be happy with.
3. Save Before You Buy
Saving for a down-payment can be the hardest part of preparing for home ownership. Ideally, you will have set aside enough money to put down a 20 percent deposit on your home. You can purchase a home with much less, but this will influence the type of mortgage and mortgage rates you qualify for.
Speak with your REALTOR® and financial advisor to decide what will work best for you.
Once you have saved enough money for the purchase of your home, consider how much of this money will actually go towards your down-payment. You might be thinking that all of these savings should be used towards the purchase price of your home, but there are other expenses to bear in mind. Consider closing costs, renovations, moving expenses, etc. Closing costs can account for 1.5–3.5% of total purchase price. Calculate all the costs associated with moving and purchasing a new home and ensure you will have enough money in the bank to cover these expenses. Be mindful of these costs when developing your savings plan.
Keep in mind that if you are a first-time homebuyer you can withdraw up to $25,000 from your RRSP savings towards the purchase of your home–it is never too early to start saving and putting money away into an RRSP.
How have you been preparing for home ownership? What does your perfect home look like? Click here to start your search and get the help and guidance you need.
