Buying your first home. How do you know if you should buy a house or if it’s the right time? Making the leap to home ownership can be scary and exciting all at the same time.
Before you buy a home, you should ask yourself these six questions:
1. Have you saved a down payment?
The typical down payment on a home is 20%. There are programs that allow you to buy a home with a smaller down payment, but you’ll want to check with your lender if PMI is required. First time home buyers in Ontario are allowed to put a minimum of 5% down as their down payment. Remember though that the more you put down the less interest you pay on your mortgage! For more information on down payments and first-time home buyer incentives click here. PMI is private mortgage insurance, which protects the lender in case you don’t pay. PMI can add a couple hundred dollars to your mortgage payment amount.
2. Will you be happy in the same house for many years?
Realtors charge 4-5% to sell a house. One thing to remember though is as a buyer you do not pay the realtor their commission, the seller pays for both the listing and buyers agent. Except in some instances where you are buying a home that is a for-sale by owner (FSBO).
- Are you planning on having children? Will there be enough room for a growing family?
- Are your children growing up? Maybe you’ll want a smaller space when your children leave home.
- Do you have aging parents that may need to stay with you?
- Do you like the neighborhood/area? Is there other families similar to yours? If you have kids, are there other kids in the neighborhood? And if there isn’t other kids, are you okay with that?
3. Are you handy (or not handy)?
If you (or your spouse) are handy, then you know you can tackle home projects as they come up. If you are not handy, then consider what will happen if something goes wrong with your house that requires repair.
Some buyers end up choosing a newer home instead of one of the older homes in the neighbourhood for this very reason. Even if you are not handy, don’t let that deter you from buying an older home if that’s what you like. Just make sure you are able to afford paying someone to fix things if/when they break.
4. What will it cost to live there?
Even if you have no problem affording the mortgage payment, don’t forget about other ongoing expenses.
What are property taxes and insurance rates? These are usually added into your monthly mortgage payment. Depending on where you live, these can add a big chunk of change to your payment.
Different areas can have widely different property taxes. You’ll also want to consider utility costs. Your realtor can ask the current homeowner for this information or you can call the utility companies and they should be able to give you historical info. Realize that the previous owner might be more or less energy conscious than you.
If you’re buying a condo or townhouse, there is usually homeowner’s association dues (some home neighborhoods have these too). Be sure to see what costs these cover-some of your utilities may be included.
5. Do you have what you need to furnish and care for a home?
Once you own a home, you will be the one responsible for upkeep. Don’t forget to leave room in the budget for expenses like a lawnmower, tools, snow removal equipment, and a ladder.
Do you have furnishings for the home? Curtains/blinds, wall decor, and furniture are just a few expenses that may pop up.
6. Do you have an emergency fund?
If you are buying a home, you NEED an emergency fund. How will you pay for repairs when something goes wrong? When you rent, it’s easy, a quick call to your landlord will get a repair completed.
When you own a home, it’s your problem to take care of. It always seems that a problem either happens at the worst time or multiple problems all happen at the same time. A basic repair might set you back $100, but what if you need a new water heater or furnace? My advice would be to start an emergency funds saving account. And every month or every paycheck put in a couple hundred dollars just in case. If something large does need fixing you would be glad you started your emergency fund.
Are you ready for home ownership?
Home ownership is a serious investment that can come with unexpected expenses if you are unprepared. Consider the neighborhood, your life plan, and whether you can afford all aspects of home ownership before you buy your first home.
Are you thinking about buying your first home in the near future?
Contact me and we can get you started :)