begin thinking about their first home long
before they can afford to buy it. Many have a
clear idea of the type of home they want, what
features it will have, and where it will be
located. But if you're not sure what you want or
need in a home, here are some things to think
about before you buy.
Make a list of needs that your house must fulfill,
and put them in order of priority (number of
bedrooms, proximity to schools or transit,
accessibility for disabled, etc). Now add to the
bottom of that list those things that would be nice
to have (finished basement, renovated kitchen, or
central air, for example). A real estate
professional can help you refine the list around
your budget and what's available on the market.
It really is the most important factor, because
where you live affects everything else in your life.
Do you prefer the city, or the country? Do you need
space for a garden, or storage for a motorbike? An
espresso bar down the street, or a lake down the
lane? Where and how you work should also play a role
in your decision – are you willing to commute, or
have you always wanted to walk to work? Will you
need a home office? All of these factors will affect
which homes and neighbourhoods you look at.
Think seriously about how much home maintenance you
are willing and able to do. A new home can be built
and styled to your specifications, without you
lifting a finger except to sign the deed. An older
home might have more character, large trees, and an
established neighbourhood. A condominium apartment
is perfect for those who don't have the time or
inclination to do outdoor maintenance. If you have
children, think about proximity to schools and
“Dream Home” is a subjective thing. Everyone has an
idea of what their dream home will look like,
whether it's contemporary, Victorian, ranch-style or
something in between. But be sure to carefully
consider a home's features before ruling it out
based purely on taste. Decide whether you really
want to pass up a home that fulfills your every need
simply because it's a bungalow instead of a
two-storey, or modern instead of Craftsman. Keeping
an open mind regarding style and turning a blind eye
to decor could be key to finding the ideal home for
AFFORDING AND FINANCING
YOUR FIRST HOME
When looking for a home, probably the first thing
you will do is establish a price range. After all,
what's the point of looking at houses that cost
$400,000 if you can only afford to pay half that?
Setting a price range is easier said than done,
however, and a number of factors come into play. The
two main things to consider are how much of a down
payment you can afford to make, and how much of a
mortgage you can afford to carry.
A mortgage covers the difference between the
purchase price and your down payment. The larger the
down payment, the less you have to borrow, the
smaller your monthly mortgage payment, and the lower
your cost of interest over the term of the mortgage.
If you can afford to put down 20 per cent of the
purchase price, the Canada Mortgage and Housing
Corporation (CMHC) will not require you to take out
mortgage insurance against your mortgage, further
reducing the cost of your home over time.
You should also have a cash reserve for unexpected
expenses and post-purchase expenses such as land
transfer tax, legal fees, mortgage arrangements,
moving expenses, new furnishings and appliances.
The other cost to consider is the amount you can
afford to pay monthly towards your mortgage.
Financial institutions do this by calculating your
debt-service ratio. To calculate your debt-service
ratio, list all your loans (car, personal loans,
monthly credit card balances). The sum of these loan
payments and your mortgage payment (including
principal, interest and taxes) should not exceed
approximately 40 per cent of your gross income. The
mortgage payment and taxes should not exceed
approximately 30 per cent of your gross income.
The size of the mortgage you can arrange, based on
payments you can afford, depends on interest rates.
The lower the rates, the larger the possible
mortgage and the more affordable housing becomes.
Also consider how open the mortgage is – can you
choose a variable rate and then lock it in when
rates begin to rise? Would prepayment be allowed? Is
the mortgage portable should you need to move before
the term is up?
The usual source of mortgage funds is a lending
institution such as a bank or trust company - and it
is the particular policy of the lending institution
that determines the maximum loan allowed. But there
are other sources of funding, too. A real estate
professional can help you navigate the field and
choose the best lender at the best rate and terms.
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