First-Time Home Buyers

Steer Your House Shopping

calendarMarch 6, 2017

peopleThe Mortgage Advisors

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When it’s time to purchase a home, it’s easy to get caught up in looking at places that are well outside of your budget. It is, after all, going to be the place where you and your family spend the most amount of time, so naturally you want to love it. And although it may be hard to say no, buying something you can afford now is always a smarter way to go. Buying a home beyond what you can truly afford is the source of the expression “house poor.” Here we give you some reasons on why you should stay on track and purchase from your wallet and not your dreams.

Down Payments

A conventional down payment is 20% of the purchase price, while the minimum down payment is 5%. When you dream of homeownership, there are two competing temptations. One, you may want to begin the home buying process once you have 5% down payment saved, rather than being patient and saving toward 20%. Two, you may have 20% saved toward an average-priced first home, but be tempted to instead put 5% down on a dream home that might not be the best fit right now. Remember, the less you put down, the more money you will be borrowing; the more money you borrow, the more interest you will pay. Plus, if you are putting down anything lower than 20% you will also need mortgage insurance, and that adds up, especially with CMHC’s new premiums that come into place this month. A mortgage advisor can help you evaluate your overall financial picture and determine which down payment amount is the best fit for you. Try our down payment calculator to get a sense of the numbers. Closing Fees So, you put in all your life savings and you did it - you got your dream home. Then the closing day comes around and suddenly you realize that you have a massive bill to pay. Big mistake! On closing day, you will need to pay closing costs such as legal fees, land transfer tax, GST/HST, PST on your CMHC mortgage insurance, property insurance, title insurance, and any statement of adjustment charges that come up. The more expensive the house is the higher the costs will be. As a rule of thumb, you should put aside about 1.5 – 1.75% of the purchase price to account for closing fees.

Maintenance Expenses

When you move in, you probably want to put your personal touches on the new home. New paint colour here, new appliances there, maybe even a new TV as a housewarming gift for yourself. These costs can add up quick, so make sure you account for them. Ongoing maintenance costs will also add up, which is why it’s important to make your home purchase conditional on inspection. A home inspection will reveal if there are any major structural problems that will result in a big repair bill in the near future. If you have renovations or property improvements on the mind, that can be folded into your mortgage. An improvements mortgage (also known as a Purchase Plus Improvements) can include the cost of renovations in your purchase financing. A great option for making your home move-in ready with the features you want.

Property Taxes

It’s also important to remember that those large dream homes also often come with higher property taxes. If the area is also an up and coming spot, you could end paying more taxes in the following years - something you may not have planned for in advance. Your home is your special place, and it’s natural to want only the best. However, the reality is that our wallets often must dictate what we can and cannot afford. So avoid being caught up in a dream bubble that can end up drowning you in bills and debt. Go with a home that you can afford here and now that can become your dream home over time as you make it into something you truly love.
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