You're ready to put down roots, start building equity and buy a home. You've done your research and settled on a budget. On paper, the numbers make sense – but to get a real taste of the financial adjustment to homeownership, why not try living with your proposed budget?
“A home is the biggest purchase you'll likely ever make,” says Farhaneh Haque, director of mortgage advice at TD Canada Trust. “Setting a realistic budget is the most important step so that you don't stretch yourself to buy a home that forces you to adjust your current lifestyle drastically.”
Haque gives the following advice to help prospective buyers prepare for homeownership:
• Take a homeownership test run:
Calculate what monthly expenses, including mortgage payments, property taxes and utilities would be. In many cases, the amount will be more than your current housing expenses, so save the difference for your down payment.
• Reflect on the experience and adjust accordingly:
If you find yourself stretched, lower your proposed home buying budget and try again. Be thankful that you found out in a test run before you actually had mortgage payments to make.
• Consider how different mortgage repayment strategies could work:
Paying back your mortgage faster by making larger or more frequent mortgage payments can save you money in interest. Using the test run strategy, you can try out a month on various repayment plans. “If you don't want to commit to an accelerated repayment plan, there are flexible options that allow you to pay more towards your mortgage when you are able to, giving you the ability to ask for a break when money is tight,” says Haque.
You may be anxious to buy a home and be finished paying rent, but taking the time to prepare yourself and your lifestyle for homeownership will pay off. “You can be truly comfortable in your home when you're truly comfortable with your finances,” says Haque.
An added benefit to the test run strategy is that the extra money you set aside will help you put down a larger deposit when you're ready to buy.
There's more information on how to prepare for homeownership available at www.tdcanadatrust.com/homeownership.