Purchasing your first house is a huge investment and responsibility. Getting the keys to the house of your dreams could also be one of the most memorable moments in one’s lifetime. However, if you’re not fully ready to own a home or if you’ve miscalculated how much it will actually cost, taking that step can lead to plenty of hardship, both financially and mentally. That’s why, below you’ll find a full guide to purchasing your first home.
Make sure you’re ready to own a home
Before taking the step to purchase your first home, you should make sure that you’re ready to take on the responsibility of owning a house. This responsibility involves both the maintenance of the house as well as the financial responsibility that comes with owning a property. When it comes to home maintenance, you should consider the following:
- Do you have enough time to devote to home maintenance such as mowing the lawn, taking care of a pool (if you will have one), cleaning the home, snow removal, etc.
- Do you have any major renovations planned and will you be able to do these yourself or hire someone to take care of them?
The most important thing to ask yourself before making the decision to own a home is whether or not you’re financially stable. When it comes to financial stability, consider the following:
- Will you be able to make your mortgage payments?
- Will you be able to pay property taxes ?
- Have you considered heating expenses?
- Do you have a safety net for unexpected repairs/expenses?
Determine how much you can afford
When it comes to buying a house, the CMHC (Canada Mortgage and Housing Corporation) outlines two affordability rules.
The first rule is all about monthly housing costs. It states that the total monthly costs of owning a home should be no more than 32% of your gross monthly income. This is the recommended percentage. However, the CMHC restricts potential homeowners to a percentage of 39% in order for them to be able to qualify for an insured mortgage.
The second rule is all about monthly debt load. The CMHC states that the total debt load for the month should be no more than 40% of you gross monthly income. Just like the first rule, this is a recommended percentage, because the CMHC restricts potential homeowners to a percentage of 44% in order to qualify for an insured mortgage. When it comes to total debt load for the month, this doesn’t simply imply debt related to the house. It can include car loans, credit card debts, student debt, and other types of debts you might have.
After purchasing your home
If you’ve fallen within the confines of the affordability rules and have decided to purchase a home, congratulations! You’ve made a life-altering decision, and it’s likely for the better! In order to ensure that your financial situation remains stable, there are a few things you can do:
Make your mortgage payments on time
The most important thing to do is to make sure that you’re making your mortgage payments on time. Every time you receive a pay-check, set some money aside in order to make sure you have enough to pay it and set a date on your calendar so that you don’t forget it. It might even be wise to ask your bank whether or not you can automate your payments. Late payments can result in penalties and can negatively affect your credit rating, so if you’re having trouble on any given month, contact your lender as soon as you can so that you can reach an agreement.
Consider extra home costs
There’s more to home owning than making your mortgage payments. You have to keep in mind that you’ll have property taxes and insurance to pay. You’ll also have to consider things like the hydro bill, internet, snow removal, etc. These are costs that most don’t really consider in the grand scheme of things, but can certainly add up enough to cause issues.
Plan for emergencies
It’s always wise to have a safety net in case of emergency costs. Even before purchasing a house, an emergency fund is always recommended. Owning a house makes it even more important, because there are many things that can go wrong — pipe leaks, plumbing issues, roof repairs, electrical repairs, etc. As for the recommended percentage for how much you should set aside, experts recommend 5% of your yearly income.
Budget
After calculating your mortgage payments, your extra home costs, and your emergency savings, it’s crucial that you create a budget for yourself and follow it. Add up all of your expenses both related and unrelated to your home expenses, calculate your gross monthly income, and determine whether or not you’re capable of meeting your goals. If you find that you aren’t, try to see whether you can cut costs or find ways in which you can increase your income.
If you still find yourself spending more money than you’re receiving, use Allevia’s online budgeting tool. Allevia will analyze the state of your finances and find the best solution for your personal situation. It can help you reach your financial goals — and fully enjoy the wonders of owning a home.
