This is the busiest time for real estate transactions in Canada. If you’re out shopping for a home it’s easy to get caught up and spend more than you wanted too. For first time homebuyers it can be an overwhelming experience. Before setting out to buy your first home here are a few ways you can make sure you stay within your budget and calculate your long term finances realistically.

Know your price before you start shopping

The worst feeling is falling in love with a home but then realizing the bank hasn’t approved you for enough to afford the purchase. To avoid this heartbreak visit the bank and get preapproved. This process can be long, as there is a lot of paper work required, but by doing this first you know the bulk of work at the bank is done.

Calculate your affordability

In my experience how much the bank is willing to lend you and how much you can afford are often two very different numbers. Once you know the bank’s mortgage offer, calculate your affordability as if your rate was 2 per cent higher. This will protect you in the case of a rate hike. Even if you take a fixed rate mortgage, you could be offered a much higher rate at renewal as the market could change.

Factor in all costs

Owning a home is not just the mortgage payment, there are other costs that first time home buyers could underestimate. Utility, insurance and general maintenance. Most of these numbers should be available through the selling agent, take a look at those before you decide if this is the right house for you. Maintenance costs can vary, but generally speaking they’re about 1-2 per cent of the value of your house annually.

Measure your commute

Walk score and commute are very important when it comes to keeping your costs down. Many homebuyers miscalculate how long it will take them to get to work every day. This can add a lot of stress, waste more gas and time overall. As well if you’re living in an area with a low walk score you may need to buy an extra car. That automatically adds $10,000 yearly to your cost of living. Take the time to visit your potential new home, not just on a sunny Saturday, but a rainy Tuesday afternoon when you see what it will take to get home from work.

Forecast your own life

The house you’re buying today should suit your life in the years to come. If you plan on staying there for the next decade for an example, what life events do you expect to happen? Do you plan to have kids, expect one of you aging parents to move in with you? All of this should be considered when purchasing that house. Moving is huge expense,  having to do so for one extra bedroom or slightly more square footage,  will be a hassle. Avoid all that by buying the house you need now and for the near future.

 

More tips to keep in mind

  1. Understand the difference between a variable and fixed rate. A variable mortgage is tied to the floating rate, which can change during your term. A fixed rate stays the same regardless of where interest rates go.
  2. Make every effort to have a 20 percent down payment, this will avoid expensive Canada Mortgage and Housing Corporation (CMHC) insurance that is required on any home with less than that amount of down payment.
  3. Put money aside for your closing costs.  After realtor fees you can spend roughly 1.5 per cent to 4 per cent of your purchase price on closing costs. Expenses such as a home inspection, legal fees, and land transfer taxes can all add up.
  4. This is probably the biggest purchase you will ever make. Make sure it’s what you really want. Talk to residents on the street.
  5. Check your credit score. You can save time by checking your report and score ahead of time, and fixing any mistakes that might be lingering.
  6. Talk to a mortgage specialist. They can walk you through the initial steps of applying for a mortgage. This helps demystify the process for you, with no pressure.