Thinking About Buying!  A Lot To Consider

Interest Rates

Interest rates do fluctuate and for several years have been at historic lows. While simple rental cost vs. mortgage cost comparisons can be very attractive, buying a home is a serious commitment, and there are many factors to consider in addition to the interest rate.  

Mortgage Costs and Pre-Approval From Lender

After establishing the mortgage costs and repayment plan with your financial institution remember to obtain a letter of commitment or pre-approval from the lender.

Home Inspection

A home inspection is highly recommended to help avoid a property purchase that could be a costly and/or dangerous mistake.  

How long you plan to live in the home?

Reselling a home costs money.  If you potentially may have to move in the short term, the value of your home may not have appreciated enough to cover the costs of buying and selling.

The length of time that it will take to cover those costs depends on various economic factors including average appreciation trends.  The real estate market can be particularly volatile, however, and dramatic swings up and down are not uncommon.

How long the home will meet your needs?

What features do you require in a home to satisfy your lifestyle now? Five years from now? People tend to remain in homes longer than they initially intended, primarily due to the work and expense associated with moving, therefore it is worth considering a home with room to grow. Could the basement be turned into a den and extra bedrooms? Could the attic be turned into a master suite? Having an idea of what you'll need will help you find a home that will satisfy you for years to come.

Your financial health - your credit and home affordability.

Is now the right time financially for you to buy a home? Would you rate your financial picture as healthy? Is your credit good? While you can always find a lender to lend you money, people with poor credit tend to pay far more to borrow.

Some say that you should refrain from borrowing as much as you qualify for because it is wiser not to stretch your financial boundaries. The other school of thought says you should stretch to buy as much home as you can afford, because with regular pay raises and increased earning potential, the big payment today will seem like less of a payment tomorrow. It is, however, important to stay within your comfort zone.  Purchasing a house involves many up-front and ongoing costs, and the stress of worrying about those costs often outweighs the satisfaction that may come from owning a slightly nicer home.

To determine how much home you can afford, talk to a lender, or go online and use a home affordability calculator. Good calculators will give you a range of what you may qualify for. Then call a lender.  Lenders make loans customized to a particular person's situation. 

The "39/44" rule has been a fairly common measurement of affordability and means that your monthly housing costs can't exceed 39 percent of your gross income and your total debt load can't exceed 44 percent of your gross monthly income. Depending on your assets, credit history, job potential, and other factors, lenders can push the ratios higher. While we're not advocating you purchase a home utilizing the higher ratios, it’s important for you to know your options. Be sure to obtain the ratio used by your lender.

Here is a link to one Mortgage Advisor’s calculator   the-mortgage-advisors-alison-everest.mtg-app.com

Where the money for the transaction will come from.

Typically, homebuyers will need some money for a down payment and closing costs. However, with today's broad range of loan options, having a lot of money saved for a down payment is not always necessary - if you can prove that you are a good financial risk for a lender. If your credit isn't stellar but you have managed to save 10-20% for a down payment, you will still appear to be a very good financial risk to a lender. High-ratio mortgages can be a good option for those who haven’t managed to save a large chunk of money, but naturally, these have additional costs associated with them.

Closing costs include both legal fees and land transfer costs.

Your real estate lawyer can provide you with an estimate of legal costs and your realtor can provide you with the scale that is used for calculating land transfer costs.

The ongoing costs of home ownership.

Maintenance, improvements, taxes, and insurance are all costs that are added to a monthly house payment. If you buy a condominium or townhouse, a monthly homeowner's association or maintenance fee will be required. If these additional costs are a concern, you can make choices to lower or avoid these fees. Be sure to make your Realtor® and your lender aware of your desire to limit these costs.

If you are still unsure if you should buy a home after making these considerations, you may want to consult with an accountant or financial planner to help you assess how a home purchase fits into your overall financial goals.