The financial commitment required to buy a home is often people’s largest and single biggest investment that they’ll make in their lifetime. That explains why there is so much more information about home financing than there is on any other topic connected to personal finances. As a home builder, we take pride in seeing people moving into their new homes and starting a new chapter in their lives in a space they are proud of. Our team keeps this in mind when designing our homes, but this article is all about making sure you can afford it. If you’re looking to purchase a home today or anytime in the future, these tips will be helpful.
Some of the things that are covered below are most relevant when purchasing a home before or during construction, when the move-in date is further away from the day you commit to buy. However, the premise is rooted in sound financial decision-making.
- Understand your source of funds and credit score
- Be realistic with your timeline
- Buying a home is life-changing – the other impacts on your financial life
- The net cost of ownership is for you to figure out
- Take advice using your own perspective
#1 Understand Your Source of Funds and Credit Score
Being financially responsible can be easy to see when you are applying for any type of loan, especially a mortgage. Your future home will be an asset that secures the loan, but you will need to have a down payment to reduce the percentage of mortgage funding (less than 100% of the total cost of the home). Depending on your credit, lender, market conditions (and other factors) this percentage split of required down payment vs mortgage amount will be unique to you and your situation.
How you achieve your down payment is important information to disclose to your mortgage professional, as they are required to disclose the source of funds to help reduce fraud. If you’re accumulating your down payment with regular savings intervals, this will be easy to show. However, if you’re expecting a large sum (like an inheritance or gift from your parents), don’t rush; it’s best to find out how long the funds should be cleared for before being used to contribute to your down payment.
As a first-time home buyer (FTHB), there are resources available to help with your down payment, such as CMHC, as you’ll want to maximize your down payment if your goal is to lower your monthly mortgage payments.
#2 Be Realistic with Your Timeline
When purchasing a pre-construction home, the timeline differs from purchasing a home that’s on the resale market, as the construction period will elongate the timeline. This can be particularly beneficial for first time buyers who are looking for a window to accumulate more savings to put towards a down payment and for downsizers who are preparing to move and need to sell their existing home.
There are two key things to consider when buying pre-construction homes. First, when you are purchasing and obtaining a pre-approval for your mortgage, learn what the terms are for holding that rate until the project is completed. Policies differ between financial institutions and it can greatly affect your closing timeline. In most cases, your rate hold will easily cover the timeline for construction, but double check to ensure that you’ll be in good shape while closing at the best rate.
The second key to be aware of is thinking about how much your life may change between purchasing and moving in. A lot can happen in 18-36 months! Life changes involving your relationships, a growing family or job changes are all relevant in this scenario. Knowing whether this is your home for a certain phase of your life or your forever home is critical for planning. Be sure to choose what is best for you.
#3 Buying a Home is Life-Changing
Changes after you move into your new home go beyond setting everything up and getting to know the neighbours. All of the routines that you currently have will be shifting, with different daycares or schools, commuting times, and even grocery stores. Be sure to consider daycare rates, gas expense changes based on your new commute length, and grocery prices being different depending on where it’s most convenient to shop. If you’re moving far enough to be changing doctors, dentists or pharmacists, consider starting those relationships before completing your move.
Understanding the implications on your daily routine and monthly budget are important so you can focus on enjoying your new home and neighbourhood!
#4 What Will Your Net Cost of Ownership Be?
Looking beyond your mortgage payment and utilities, there are other costs to be aware of when you’re going through mortgage approvals. These can include strata fees and property taxes, both of which should be calculated as a percentage of your verified income to ensure that you’re not over-leveraging. What does that all mean? You want to purchase a home that you can comfortably support every month.
Looking at the net cost of ownership is a good exercise when looking at different housing options. The main considerations in condos are the amenities and your strata fees. While having a large amenity space with tons of features is a fantastic perk, that could mean a higher strata fee – which means you’ll only be able to afford a smaller mortgage payment. A smaller mortgage payment generally means a smaller home.
There might be some energy efficiencies that can offset some of those costs. For example, electric vs gas heating/cooling systems change how much it costs to keep your home comfortable, and the cost can either be individually yours or built into the strata fees.
Take a close look at everything that impacts the costs to you. Be realistic about what your needs are, and what you’d like to have if you can afford it. Added features that will increase the value of your home over time are always great, as long as the cost in the interim is justified.
#5 Take advice using your own perspective
In a fast-growing city, there are many different housing options and designs to suit every taste. While this might not sound like financial advice, it really is. You’ll hear from many people about what they would like to have in a home once they know you’re looking to purchase. They’re doing so with good intentions and are excited for you, but it can be confusing when you’re looking through display homes and open houses and have so many people giving you advice on what to look for. The answer usually ends up being yours and your Realtor’s. Keep in mind that what you need to support your lifestyle and family is the most important factor of all.
Pay particular attention to the conversations you have that are aligned with your goals, and politely disregard the advice to buy a farm if you’re looking for a condo in the city! That might sound extreme, but no matter how little or great the difference may seem, the bottom line is that it’s not a good fit. Find a home that you’ll love for years to come.
We hope these tips give you some extra confidence with regards to your financials when you’re considering buying a home. We know that this is just the starting point, so seek out advice from your financial professional to help you come up with a plan that will suit your needs. Our goal is to have an amazing home for you to consider when you’re ready to purchase your next home!