What kind of home do you need?
What can you afford?
A blog cannot deal with all aspects of a subject and is not intended to replace professional advice. It's purpose is to highlight information and identify areas of possible interest. Anyone wishing to discuss this blog or to make any comments or suggestions about this blog is invited to do so by either posting comments or emailing me directly.
August 5, 2011
First-Time Buyers - Making A Dream Come True
Are you among the thousands of Calgarians who pay rent each and every month, knowing that you'll never see that money again?
For many this need not be the case. If you don't need to move from place to place or from job to job, why not take income lost forever to rent and build it into an investment that can last a lifetime?
Right now there are excellent opportunities for first-time buyers; mortgage rates are low and there are reasonably-priced starter homes on the market.
Before you run out and start looking at homes, it is a good idea to first take a look at what you need, what you want and what you can afford. Whatever your taste and budget, there is a home out there for you. It will just take a little planning and forethought to make your dream of being a home owner come true.
What kind of home do you need?
Buying a home is never based on one specific factor; instead, it is a balance of many requirements - things like family size, location, income and lifestyle. REALTORS® are excellent sources of advice and assistance in these matters. Not only do they have the experience, training and knowledge to make sure the choice you make will be the right one, but they also can help you find the right property for your needs.
The first thing you need to do is decide exactly what you need in a home. How many bedrooms? How close to schools or shopping? Do you need a garage or finished basement? These kinds of questions can be itemized in a "buying worksheet" that will serve as a guideline in your search.
Next on your agenda should be deciding on a preferred location. In the city centre, suburban neighbourhood, or in a neighbouring town? Town or country? City dwellers tend to think that living in a smaller, outlying community would be idyllic, but forget about the commuting factor. How will the roads be in the winter? Do you really want to drive 45 minutes or an hour every day, winter and summer to get to your dream home? Do they have the amenities and services that you use regularly?
Once you decide on a general area you wish to live, you will probably find that there are a good number of options when it comes to the age and type of home you might purchase.
New homes are a good bet because of their extensive warranties and pristine condition. On the other hand, you won't have mature trees or landscaping - that is something you will have to plan and work at over a long period of time. They also won't come with window coverings, closet organizers, fences or decks. These are additional expenses you will need to consider.
Resale homes offer a great combination of affordability and character. Many will include improvements such as finished basements or rec. rooms, central vacuum systems, garage door openers, decks or patios and mature landscaping. They may also come with repairs and upgrading in the near future.
Condominium townhouses and apartments are obviously suited to particular lifestyles or budgets. Maintenance and upkeep of the property and building exterior is usually taken care of by professional management and is shared by all the unit owners and can be kept low and manageable. Condominium living often means sharing common areas such as parking, hallways, amenities and landscaping.
Rural properties offer the ambience that many of us crave: green pastures, wooded areas, friendly community and safe streets. These plusses must be weighed against more limited services and additional commuting time.
What can you afford?
Once you have determined what it is you want and need, you will have to find out what you can afford. It is crucial to avoid a situation referred to as "house poor". Many homeowners have found themselves in a state where the costs of paying for the home are so burdensome that any enjoyment is outweighed by the pressure of the monetary commitment.
So the first thing to do is set a maximum price range instead of just an upper price. It is not always wise to buy the most expensive home you can afford, but better to aim lower in anticipation of extra costs or fluctuations in your income.
What you can afford will be based on two things: the amount of your down payment and the maximum monthly payments. Obviously, it is preferable to make as large a down payment as possible; this will keep your monthly payments down and save money in interest costs.
Initially, you can take the amount you pay in rent, renter's insurance, utilities, and how much you are regularly putting into savings to buy a home, and this is the amount you can put towards yours monthly payments of: mortgage (principal and interest), property taxes, house insurance, utilities and ongoing maintenance. If your savings have been regular and significant over time, the cost of owning a home can be less than the expenses incurred through renting and your monthly savings. These numbers, along with the down payment you have saved, can give you the initial figures that you can type into a mortgage calculator on a REALTOR®s or financial institution's website. If you cannot save money currently, you may need to scale back your expectations for the features you look for in a home.
A REALTOR® or your financial institution will help you determine a more precise amount of the mortgage you can carry by calculating your debt service ratio. The rule of thumb is that the sum of all your current loan payments (car, personal, credit card, etc.) plus your mortgage payment should not exceed 40 per cent of your gross income. In addition, mortgage payments and property taxes should not be more than 32 per cent of gross income.
Buying your first home may seem intimidating in the beginning, but with careful planning and a clear idea of what you want, home ownership can be a joyful reality for you and your family.
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