With mortgage rates possibly headed even lower and property values skyrocketing in some parts of the country, many are considering if now the time to take the plunge into home ownership is now.
Think with your head, not your heart. Buying a home is emotional, we get it – but, ideally, you should treat it like you would any other investment to get the most out of the transaction. It is easy to get wrapped up in the excitement and be so afraid of losing out that you are willing to overlook certain things, or skip certain steps such as the home inspection (don’t let anyone pressure you into buying without a home inspection clause, and don’t use the inspector recommended by the selling agent).
Crunch the numbers (independently). So you are pre-approved for a mortgage? Great – that is a good way to show sellers you are serious, and to get an idea of what the bank will give you. Don’t make the mistake of trusting what the bank says you can afford. Remember, selling mortgages is big business for them, and they are trying to sell you on using their products. They will likely pre-approve you for an amount higher than what you can actually afford, as they don’t take into account your daycare costs, the price of your daily commute, what it will cost to make home repairs, and all those other day to day living expenses. Make sure the amount of mortgage you are signing on for is something you can realistically carry, and do some additional calculations for in case interest rates go up. You don’t want to be forced to sell if interest rates rise. Don’t forget to consider different payment schedules and amortization periods. A shorter amortization period or accelerated biweekly payments rather than monthly could save you thousands of dollars in the long run. See how much you could save by using the federal government’s home buyers plan (up to $25000 for an individual, or $50000 for a couple can be borrowed from RRSPs). Does it make sense to use for you?
Remember the invisible costs. Closing costs, land transfer taxes, moving, home repair and renovation costs, and real estate lawyer fees all need to be factored in to the total cost of owning a home. Make sure you have plenty of room in your budget.
Buy at the right time for you and your family, not for interest rates. It is tempting to rush to take advantage of a great rate, but if you end up buying before you can afford it, you might not be as happy in your house as you are imagining yourself to be. Being house poor is no fun, so make sure you have a good down payment and you are comfortable taking on the extra commute, payments, or responsibility of making all the fixes yourself at this point in your life. Do you know your credit score? If it is low, you would save money by improving your credit worthiness before buying a home, and rushing might not make sense.
Don’t furnish your home on credit. Once you move into a big house, after spending all your extra cash on closing fees and moving, it can be tempting to furnish your house with a “buy now, pay later” arrangement. Don’t do it – wait until you have the money for the furniture you want, and save money by buying used furniture on your local Kijiji.