Dollar$ and $en$e: Can you afford to buy a home? Part II

When we first moved to our little town we started a house hunting search. In the first few months we had seen about 20 homes in every shape and size.

It was overwhelming, and a bit disheartening. You see, we picked an arbitrary number-something we thought we could afford without really looking at the numbers.

To do it over again, we never would have made contact with out realtor until we knew with a certainty what we could afford. (Check out part 1 in my blog, if you haven't done so yet.)

After working through what you are able to afford (and having your savings in place), the next step is to speak to your banker and/or mortgage broker. If you know that you have good/great credit, this step is of course much easier. Do get two bits of advice. The more information you have at hand, the more prepared you will be to negotiate a term that works for you.

Note: There are many types/ways of creatively financing your mortgage. For now, I will be discussing a conventional mortgage process (as this is what I am most familiar with).

So, you hear back from your mortgage broker/banker and you find out that they have approved you for an X amount. (Remember: often it can be more than what you can actually afford in reality.)

Now it is time to start looking at the local market...and begin making your lists.

Lists???

Yes. First you start with your must-haves, better known as the, will not compromise X, list.

For example: location, 3 bedrooms, 1 bathroom, open concept, electric heat, yard, washer/dryer/fridge/stove, new windows, newer roof

Then you make your 'would be nice' list.

Examples: Stainless steel appliances, laundry on main floor (not basement), ensuite bathroom, hardwood floors, dishwasher

Then you make the 'I am comfortable changing X list'. If you are a handy person, then you might be comfortable tackling major reno's, some people do not want to even tackle paint. You need to be honest with what you can manage-and this HAS to be part of your search.

Now with lists in hand, the best place to start is Realtor.ca You can begin by viewing homes in your price range. Remember that homes viewed, doesn't mean that's what you'd pay, it can be more or less depending on the market, length of time it's been up, amount of work it needs done etc;

So if your max budget is 110K, then you should be looking around the 75K-125K price range. With the understanding that the closer you get to your max budget, the less amount of work it should require to meet your standards.

TIP: don't fool yourself into thinking you'll get a 10 out of 10 home. Even if you build your own place there is ALWAYS going to be something you want to change.

Now, with lists in hand...meet with your realtor-FULLY explaining what you are willing to pay and what you are looking for.

We saw far too many homes. It was unnecessary for both us and our realtor.

Now in each home you view, make sure you take your checklist, and take photos. Note anything that you see immediately that you would change.

After your first viewings, take a look at what you have. Try to narrow down the homes that you would like to revisit, based on price, amount of work required etc;

Go back, and REALLY look this time. In the cupboards, in the crawl space, anywhere where you can get access to. Fill in any holes you missed on your first search.

Now for most home buyers, it's a very emotional decision. You either love it, or hate it often enough. No matter the love-you need to do your homework.

In some cases, you might love it, but can't afford the extra 20K to put into it.

So you found the 'perfect' home, and it fits your budget and major expected repairs for first look...alright-it's time to put in an offer.

WOOHOO.

...to be continued...

...remember to seek professional help when purchasing a home for the first time, this is meant to be a guideline or food for thought...

Dollar$ and $ene$e: Can you afford to buy a home?

So my hubby and I finally bit the bullet and bought a house.

It was thrilling...exciting...and completely terrifying all at the same time.

Now before I get into our specific story, I wanted to address the first part that any one's decision should be to take the big step towards home ownership.

CAN YOU AFFORD IT?

Now how does one assess this? When we first when in to see our banker to discover whether or not we'd qualify for a home, we were surprised that-yes we could-but we qualified for far more than what we could reasonably afford in reality.

Tip 1: Just because your bank tells you that you can afford a, for example, 200K home, doesn't mean that you actually can.

So then how can you decide what you are able to manage? Well, if you are renting, then you know exactly what you can manage. If you are living at home, I would suggest an entirely different route to discover this-we'll get to that later.

                   Dear Renter,

How do you find your monthly rent/hydro/rental insurance payments? Do you ever struggle making any one of these payments? Are you a two income family that could potentially turn to one income (if you are, go off of what one person can reasonably afford)?
If you are managing your monthly payments without issue...read on! If you are struggling, then you need to assess what you can reasonably afford-in rent-before continuing.

Let's use an example:

You are paying $1000/month in rent + $120/utilities +$30/renters insurance. You can comfortably afford a $1150 a month on a mortgage AND expenses.
Please note: from here, you really need to do your research, specific to your city/town/municipality.

$1150.00
Now let's consider the expenses:

- 75.00 Monthly Municipal Sewer/Water/Garbage Fees (Check out your local municipality for more information.)
- 150.00 Hydro Bill (Do your research, if you are looking for something comparable to where you are already living, then you will have a good idea of what it costs. Ask around, find out what utilities are available to you. You might not have the means to go off of wood heat 100% of the time to reduce costs on your Hydro bill. You may not have Natural Gas as an option, every one's situation is different.)
- 100.00 Home Owners Insurance (This is another area in which you must do your research as it depends on the type of home you have, the type of heating sources, the age, the cost of the home and what it would take to replace. It also depends on whether or not you include Life Insurance and/or Critical Insurance with this. (We chose not to in our case because my husband has a plan through work which we maxed out, plus we have private insurance to top it up.))
-167.00 Maintenance Fees (This is based on a 100K home with 2% Annual  Maintenance fees divided over 12 months.)
-XXX.XX STRATA FEES (We decided to get a home that was strata-free, with the understanding that our maintenance fees need to be carefully spent so that we have money tucked away for situations like the hot water heater breaking.)
_____________________________________________________________________
$658.00 Left over for Mortgage Fees


With a 25 year Mortgage, at 5.24% Interest, your mortgage would be $654 for a $110,000 House

Now let me ask...was that what you thought you would be able to afford?

When you pull up MLS.com, does anything come up in your price range, in an area that you like, where you are searching? Often times, there really isn't much for options. What do you do then? SAVE! The more you put down, the less of a mortgage you incur.

                Dear 'living-at-home-or-other'...

The above applies, but in order to be sure that you can tuck that money away this is my suggestion. Decide what you think you could afford for monthly payments. Let's say you think you can afford $1150, now you need to tuck that money away every month into a bank account that you cannot gain access to for a min. of 6 months. If you are able to do so, and don't miss the money-you may be ready for home ownership. Plus, you have just saved up more towards a down payment for your first home.


OTHER COSTS:

Remember that you must have...

---5% of principal cost on the home you are purchasing for a down payment (on a $110,000 home that amounts to $5500)
---on average $300-$500 for a home inspector
--- on average $300-1000 legal fees (which can vary between notaries and lawyers, and then area in which you are purchasing)
---moving costs
____________________________________________________________________________
From the get go you are looking at $6100-7000, excluding moving costs, on a 110K home.


So do yourself a favor. Before you start scoring out MLS, local adds, kijiji, craigslist, do the math. Don't waste your time, or get your hopes up with unrealistic expectations.

When you are honest with yourself, you'll have a much better buying experience.

...to be continued...

...when purchasing a home, seek out professional advice...