With home prices still surging, many new homebuyers are considering buying homes truly out of their range of expense. Household debt is increasing greatly in Canada and even with the measures that the government has put in place (like the stress test) to ensure first-time buyers aren’t getting in over their head, many still are. How do you buy a home and ensure that it sticks within your budget in a way that keeps it affordable (and you don’t have to live off ramen noodles for the next five years)?
1. Get a pre-approval
The first step to the home buying process is to get a pre-approval from the bank for your mortgage. They’ll look at your income, debt and credit rating and determine a maximum purchase price for you. But, don’t think that just because you’ve been approved for an amount that this is the amount you should borrow. This leads me to strategy #2.
2. Create a budget
Only you truly know how much you spend monthly. Maybe you have a shoe fetish or an obsession to buying antique watches. If you want to keep your hobbies and lifestyle similar to what you had before buying a home, be honest about your expenses. Sure, there should be some sacrifice as you are investing for your future, but if you aren’t willing to stop spending, don’t pretend like you are when buying your house.
3. Shop around for the best mortgage
Interest is a killer and the higher your rate, the higher your payment. If you take some time to shop around and find a great rate from a great lender, you’ll thank yourself later for not spending that basically wasted money and keeping it where it belongs – in your own pocket.
4. Choose your home wisely
While you may be staying within your budget in terms of mortgage payments, don’t overlook the costs of property taxes, home maintenance and repairs. A fixer upper might be a good solution for getting a larger home or one in a preferred location, but it will cost you and if you don’t have the money to spend, you may find yourself on the selling end of a home transaction before the end of your mortgage term. Consider all of the costs of the home you choose before you buy it.
5. Choose your location wisely
Many believe that you can buy a home cheaper than you can in the city (and you definitely can!), but if your commuting costs go up exponentially, is it worth moving so far from the office? If you believe it is, because you want to get rid of the hustle and bustle you find in the city and move to a serene and upcoming town like Collingwood, you may want to consider changing careers or working at home (don’t forget to find a home with a spot for a home office!).
If you need help buying the home of your dreams and keeping it affordable, let me know how I can help.