By Tracy Head
Just because the numbers say you qualify to carry a mortgage, it doesn’t mean you're ready.
If you are thinking about getting in to the housing market or upsizing, it’s a great idea to meet with your mortgage specialist or bank well ahead of time.
Learn about the process and find out what you are looking at in terms of upfront costs and ongoing expenses. Research the payments you will be responsible for above and beyond your mortgage.
As a homeowner, some of the ongoing expenses you will be responsible for include:
- your mortgage payment
- property taxes (can be collected with your mortgage payment)
- quarterly public utilities (city services like garbage pick-up and water)
- monthly strata fees (if applicable to your new home)
- property maintenance and repairs
- utilities – internet / gas / hydro
- home insurance
- life and/or disability insurance to cover your mortgage (optional)
- alarm system (optional)
In addition to the ongoing expenses, you will also be responsible for repairing or replacing appliances when they pack it in; there will be initial expenses for items like lawn mowers; and you will need to plan for annual maintenance activities (gutters, furnace, spring yard clean up, etc).
As a tenant, your rent likely includes most of these expenses and it can be an eye-opener to realize what the true cost of owning your own home will be.
If you are trying to decide if you are truly ready, create a budget based on the list above. From there, practise covering those expenses for a few months.
Take the difference between your current rent payment and the budget you just created and put that amount into a savings account.
Be disciplined and committed – this budget represents your new reality as a homeowner. Stick with it for a period of at least six months to a year. This will give you a taste of how owning a home will impact your current lifestyle.
Let’s say that you total up the expenses on the list and that total is $2,850. Assume you are currently paying $1,700 in rent plus utilities (gas, hydro, internet/tv) for a total of about $2,100 monthly.
For the next six months, put the $750 difference into your savings account or TFSA. Better yet, round it up to $1,000 to represent unexpected maintenance and repair costs.
At the end of the six months (or whatever period you choose), you will have a substantial chunk saved for your down payment, and will have a pretty solid idea of whether you are ready to take the plunge and buy a home.
Tracy Head is a mortgage consultant with Verico Complete Mortgage Services. She can be reached at 250-826-5857.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.