Renting or buying a home?
It is not secret that buying real estate is a long-term investment with a high return value. Realizing the advantages of the low mortgage rates market the sellers keep the prices high, which on other hand causes new home buyers to rethink.
The Mortgage experts suggest that no more than 32% of your household income should be spent on mortgage costs. How much you can afford then to pay for your home? We suggest you try our free mortgage calculator.
1. How much can you put as down payment?
The suggested minimum is 10-20 percent of the home´s purchase. Still there are options allowing you to put down only 5 percent, but in Canada, and particularly in Quebec, the big banks prefer home buyers to deposit as down payment an average of 10 percent. Having less than certain percentage to put down when buying a home may result in paying additional 10000$ or more.
2. Do you know there are additional closing costs between 1.5 and 5 percent of your mortgage?
The home buyers don´t have to pay broker´s fees, but still there are other closing fees that should be considered.
Depending where you are buying a property, the transfer taxes can be very costly. Lawyer, Notary fees, seller and buyer property tax adjustments, appraisal fees, home insurance, home inspections, even your moving expenses may end up as significant amount added on top of your mortgage.
The key for happy home buyers is a reliable and accurate building inspection, especially for first-time home buyers. They may be easily impressed by fresh painting, designer decorations, granite counter-tops, new appliances and hardwood floors but can miss very important details as an old furnace, old central conditioning system, roof leaks, or electrical system that needs major repair. Keeping that in mind, spending a couple of hundred dollars for building inspection is worth every peny.
3. Do you think you can keep your debt servicing below 40 percent of your total family income?
Your total debt ratio is measured in percentage of your gross annual income. It should be able to cover your housing payments such as: your mortgage (principal and interest payments) provincial property taxes, insurance, heating plus any other debts like car financing or lease, personal credit lines, student loans and credit cards. The 40 percent rule is precisely to please the banks and is considered as general mortgage eligibility criteria when submitting and application for mortgage.
From all we discussed so far we can conclude, your housing payments and your all other debts and credits should be at most 40 per cent of your gross annual family income.
4. Do your monthly fixed costs exceed 60 percent of your net income?
What we include in fixed costs are all housing, transportation, groceries, activities, and everything you should pay every month whether you like it or not.
Keeping your fixed costs under control can provide you security that you have actually enough money left over so you may keep saving, and protect you of becoming “house poor.”
Once you become a home owner, it does not mean it is all done. You should still have to save for other expected and unexpected things. What you should do is making sure you have enough money every month and you don’t have to go into credit card debts.
5. For how long do you plan to keep your property?
The financial advisers suggest to their clients to think about their life in different periods of time, like: three, four up to five years when considering becoming a home owner.
Let say a young couple home buyers are interested in buying a condo, but shouldn´t they consider how soon they’ll need more space for growing their family?
In all cases buying a home should be considered as a long-term investment – it not necessarily be worth if after a year of buying your home you want to sell.