If you are preparing to buy a home now is a great time to move into the London, Ontario real estate market since mortgage rates are at historic lows. If you follow the media, you will see there are quite a lot of comments regarding a market adjustment but unless you live in a major market like Toronto or Vancouver, many of those articles are not for your market. Major cities have seen rapid inflation of property values while most others have risen gradually, which is common in the majority of cities across the country. So if you are waiting for a downturn in the market before you buy, you might just be waiting indefinitely depending on where you live.
Choosing to make the move requires a good deal of planning, especially in regards to financing. Before you start browsing your local mls real estate listings grab a pen and paper and start calculating how much you can afford to get into.
One grave mistake is taking on more than you can chew. It seems rather obvious that no one would want to put themselves into that position, but many do either because of life changes out of their control or they didn’t plan ahead of time and unexpected expenses became too overwhelming.
Consider the following when planning your next move:
1) What is your monthly income after taxes?
Most people have their taxes deducted before it reaches their bank account but if you are either self-employed or in another situation where taxes aren’t deducted make sure you account for your taxes. If your income is based off of sales/commissions you should have a good idea of what you average over the year.
2) What is your debt load?
This refers to any non-housing debts excluding utilities/taxes that must be paid each month. Such items could be car loans, credit card payments, child care, and student loans.
3) Calculate your monthly expenses
It’s important to include your monthly expenses into your final calculation so that once you have purchased a home, you can still enjoy the activities you love to do. Such expenses include: internet, cell phone, cable, entertainment, clothes, food, travel, etc. Each person is unique and as a result this list will be as well.
4) Calculate your estimated utility costs
This aspect is quite unique as you likely don’t have a comparison in hand. If you are moving from an apartment to a 2-storey home, there is no way your utility costs will be the same. Make sure you get an idea by either talking to friends before you hit the real estate market or finding out the utility costs of the homes you view. From this, you can get an estimation of what these costs may be. Keep in mind that the condition of items such as windows, furnace, a/c unit, and age of the homes you are viewing will play a factor in those costs. Bigger houses can consume a lot less energy than smaller houses, it’s all about the efficiency of the systems in place.
5) How much downpayment have you saved?
Many lenders have different criteria but you likely need at least 5-10% to put down on your new home. For example, on a $250,000 you may need $12,500 (at 5%) or $25,000 (at 10%). If you have 20% to put down on your new home then you can get a place without having to pay the CMHC premium, which is added to insure your mortgage if your downpayment is less than 20%.
Take the time to consider these calculations. Once you have figured out all of your expenses and subtract that from your income you will have a good idea of what you can afford. Leave room for unexpected costs, don’t leave yourself running thin every month. Even after writing everything down make sure you haven’t missed anything so that you have a clear picture of what you can afford. Let your new home complement your lifestyle as opposed to consuming it.
Sutton Group – Select Realty Inc.
A blog helping people understand more about Real Estate in London, Ontario and Canada