There’s nothing quite like the feeling of putting your keys in the door and knowing the property is yours. Homeownership affords you the ability to customize a home to fit your needs and personal style, all while building equity. But while the idea of buying a property is a very intriguing proposition, it’s also a sizable commitment. When done at the right time and for the right reasons, the benefits of owning a home outweigh the risks. But if you’re not ready, that purchase could have consequences for your lifestyle and finances. Here are some questions to ask yourself before you start the home buying process:
How do your finances look?—be honest: there’s no hiding your finances once you start the home buying process. As soon as you sign contracts, banks, mortgage companies, title companies and realtors will be going through your finances with a fine-tooth comb to ensure that you really do have the ability to purchase the property. You don’t want any surprises, so it’s best to take a long, hard look before you find your dream home. Here are some factors that financial institutions look at when they approve a purchase:
- Your income: do you make the same amount every month or does it vary? A consistent income is preferable since it is indicative of your ability to pay the mortgage each month.
- Your employment history: have you had a stable job for a while or are you always jumping from job to job? Banks prefer that buyers have at least two years with the same company.
- Your debt: do you have student loans, a car payment, multiple credit card balances? While most places expect that you will have some amount of debt, too much is a red flag.
- Your credit history: are there any late payments or delinquencies? Are you working to pay off your debt? When banks give you a mortgage they are taking a gamble that you’ll pay them back. If you can’t pay off smaller loans, it’s unlikely that they will take that chance.
- Your savings: the ability to make a down payment is essential to buying a home. Ideally, you’ll want to put down 20% of the purchase price. Plus, have a bit more money left over to cover any supplemental costs like inspections.
How much are you comfortable paying per month?: when you go to a mortgage company, they will take a look at your financial history, do some calculations and give you a pre-approval for a certain amount of money. This amount is the maximum that they would feel comfortable loaning to you. That number may look attractive now since it affords you the ability to look at homes in a higher price range. But remember: the higher price range also comes with a high monthly payment. A high monthly payment is a trade off. In order to make that payment you may have to cut back on incidental spending like going on vacations or eating out. If you don’t want to give up those luxuries, it may be worthwhile to look into lowering your price range to give yourself a little breathing room.
Whose names will go on the deed?: at settlement, you will be asked to signed the deed for your new home. It’s a document that transfers the ownership of and financial responsibility for the property from the seller to the buyer. If you are considering buying a property with another person – whether they are a parent, spouse, or friend – you should have a discussion about whose name(s) will go on the deed before starting your search. There are many reasons for an unconventional deed. If your income is lower, you may want to ask a parent to be your cosigner, so that you can look in higher price range. In cases where one partner is self-employed, it may be beneficial to have the other person be the sole name on the deed in order to protect your assets if there is ever a lawsuit.This is unquestionably an emotionally charged and often difficult discussion. Handle it with care and respect the other person’s thoughts and feelings. But, it’s better to get it out of the way now. When mortgage representatives look at how much to pre-approve a buyer for, they only consider the income of the person or persons going on the deed. So, if you are considering an outside-of-the-box signing arrangement, you need to be clear on what it is before you start looking at homes that you may not be able to afford.
Do you prefer the country or city?: the phrase ‘Location, location, location’ is used for a reason. While you can always remodel an older kitchen, decide to finish a basement, or add on a deck, your home’s location is the one feature that you can’t really change. Keeping that in mind, it’s important to have a solid idea of where you’d like to be before you start looking at listings. Some people may know exactly, but if you don’t, start with this question: Would you be happiest in the city, country, or in the suburbs?Each area has its pros and cons. City living is great for those looking to enjoy close proximity to shops and restaurants, but price tags tend to be high for comparatively little space. A house in the country will give you room to spread out, but you have to be okay with the idea of a long commute to work. The suburbs offer a middle ground, but your surroundings may be less unique. You don’t necessarily have to limit yourself to one area. Do some googling and research different areas. If you find a couple you like, don’t hesitate to explore them. Try to picture yourself living there on a day-to-day basis.
What are your absolute must-haves in a home?: no home will ever be 100% perfect for you. At least not from the moment you sign the deed. Every property is going to come with a certain amount of compromise. Once you start actively looking at listings, you’ll likely find some homes in your price range and desired location, but that require a little fixing up. Other homes will have all the features you desire, but come with a higher monthly payment. With this in mind, before you even looking at potential properties, it’s important to take stock of the things that are your must-haves. Do you require a certain number of bedrooms? Is it critical to keep your kids in their current school district? Are you absolutely, positively unable to go above a certain monthly payment? When you sit down with a real estate agent, these factors will give them a good idea of where to start your search. Using these criteria, he or she will be able to weed through all of the available properties on the market and handpick the listings that work for you, which will save you both time and energy.
What features are on your wish list?: now that you know what you truly need in a home, you can move on to the fun part: your wish list. These are the things that, while they wouldn’t make or break your decision to buy a property, may help you pick one listing over another once you start looking. Would you like an updated kitchen since you do a lot of cooking and baking? Would it be nice to have a fenced-in yard for your pets? Are you a fan of older homes with tons of charm? When it comes to the items on this list, be flexible. Keep in mind that while these features would be nice to have from the get-go, since you’re planning on staying in the property for the foreseeable future, you can always add them later on.
Are there any characteristics you’d like to stay away from?: as important as it is to know what you want in a home, having an idea of what you don’t want can be just as defining. But, as with the features on your must-have list, try to focus on things about the property that cannot be easily altered. Are you opposed to living on a high-traffic road? Do you have reservations about maintaining a pool? Is there a particular neighborhood that you’d prefer to stay away from? Again, consider these when deciding if you’re ready to buy, but don’t be afraid to be open. It’s okay to have one or two of these characteristics, but if you rack up too many, you may be limiting yourself in terms of possibilities.
How much maintenance can you handle?: it’s easy to picture yourself embracing the fun aspects of owning a home: shopping for furniture, hosting parties in your backyard, and enjoying the peace and quiet that comes with having your own space. But, in addition to all those positive qualities, there is also a lot of upkeep. Be honest with yourself about how much maintenance you’re able (and willing) to do. That fix-upper may have a lower price initially, but make sure you factor in the cost of repairs. A big lawn sounds like a nice feature, but it also comes along with lots of grass that needs to be cared for. Big rooms look nice, but rack up even larger heating bills during the colder months. If you enjoy the idea of working on weekend projects, don’t hesitate to scope out a big home or a fixer-upper. But, if the idea of dealing with maintenance without calling a landlord scares you, look into buying a condo or town home.
What do you intend to do with the property?: the short answer to this question is, of course, to live in it. But, allow yourself to think a little deeper. Are you looking for a starter home that will enable you to build equity? Could you see yourself investing in the property, fixing it up, and then renting it out for a secondary income? Or, do you intend for this home to be the place where you and your spouse grow old together? Knowing how you want to use the property will help to focus your eventual home search. If you’re looking for a property that will eventually serve as an investment, aim for a busier area that will appeal to lots of renters. Whereas, you’re aiming for a home that will grow old with you, stick to a size, layout, and location that you can see yourself being happy with for years to come. The decision to buy a home is not one that should be made lightly. If you’re ready to make the commitment, owning a home has many benefits. But, if you jump into the market too soon, the purchase can leave you with personal and financial heartbreak. As yourself these questions to get a better picture of whether or not you’re ready to take the plunge.
CENTURY 21 Miller Real Estate Ltd.
Brokerage Independently Owned and Operated
#4 Office in Canada
By Production CENTURY 21 Canada 2013
467 Speers Road,
Oakville, ON L6K 3S4