Buying a new home is an exciting time, particularly if it’s your first. But homebuying can also be a stressful – and overwhelming – process. After all, you want to buy a home you love and at the same time protect your long-term financial goals. Follow these tips to help make homebuying a positive experience.
Be Financially Prepared Owning a home is expensive, much more so than renting. Even if your monthly mortgage payments are similar to what you currently pay in rent, there are additional costs to consider, such as property taxes and home maintenance. Before you even start the homebuying process, you should be debt free and have an emergency fund that covers three to six months worth of expenses. You should also create a budget and stick to it. Figure Out How Much House You Can Afford Before you start house hunting, you need to work out a ballpark figure of how much you can afford to spend on a new home. A good rule of thumb caps your monthly housing costs (including mortgage, taxes and insurance) at no more than one-third of your gross annual income. If your monthly housing and housing-related costs don't leave you enough money for your other expenses, then you have a few options, such as reducing “lifestyle” costs, such as new clothing and restaurant meals. You can also consider a lower-priced home that still meets your needs. Save for a Down Payment Paying for a house outright is out of the question for most young homebuyers, so you’ll need a down payment and a mortgage. One way to save for a down payment is to contribute to a Registered Retirement Savings Plan (RRSP). Along with a tax credit, you can withdraw up to $35,000 from an RRSP to buy your first home. The only catch is that the money must be paid back within 15 years. Check with your financial planner to see if this is a good option for you. Save for Closing Costs & Incidentals Along with your down payment, you will need to set some money aside for closing costs, which can amount to as much as 4% of the purchase price of your home. Those expenses include home inspection costs and legal fees. And if you haven’t budgeted for it already, don’t forget that you have to furnish your new home as well, so consider the cost of some new furniture. It’s going to be expensive, so you need to start saving quickly and aggressively if you’re looking for a short-term home purchase. Don’t be afraid to put your retirement savings on hold for a while. And if it takes you a few years to be financially prepared for a new home, that’s OK too. It’s better to have a cash cushion rather than be in a situation where you can’t afford the myriad costs surrounding home ownership. |
Cecil Darren Frank - Toronto Real Estate AgentArchives
October 2019
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