September 26, 2020

First time, first fury

By Helen Morris, National Post October 7, 2011

Moving into your own place can be great. Securing a mortgage and paying out all of the extra closing costs will make you study your finances like never before. While the mortgage payments, and perhaps also condo fees, will be the largest monthly outgoing, planning ahead and having a safety net can help reduce some of the more unexpected shocks to your budget in the first couple of years of ownership.

Most times first time home buyers don’t see that far. They just want to get the mortgage approval and know they can start shopping for a home.

Having the pre-approval process explained gives a better idea of the true cost of home ownership.

Your total cost of carrying the home: principal, interest payments … factoring in taxes, heating expenses, condo fees – try to keep that around 30% to 32% [of gross income]. Your entire monthly debt load, when you start factoring in credit cards, cars and so forth, should not exceed 40%. If you can stay in those parameters, the probability of having a positive experience buying a first-time home goes up significantly.

Budget and plan for a number of costs. For instance, the cost of furniture and window coverings can be shocking.

As well, If you don’t have a home inspection, there’s always some kind of work that sneaks up on you even if it’s just getting the furnace cleaned every two years. Most first-time homeowners are not aware of those kinds of mechanical upkeep costs.

If you are buying a resale condo, looking at the status certificate will show some of the costs of upcoming building maintenance. It may also be worth your while to hire a home inspector to flag current and future maintenance costs.

That buyer inspection will typically outline things that need immediate attention, like water damage. The inspector will often put in things that should be looked at again in another three to six months.

Many people are keen to put every penny they can into their deposit and to pay down their mortgages as fast as possible. However, that as long as there was a 20% or more down payment (avoiding mortgageloan insurance), it may be prudent to hold back some of the money during the first couple of years of ownership to give yourself a safety net to pay unexpected bills or meet a shortfall if any budgeting was off.

That’s one year of additional interest on that down payment that you would be forgoing, but on the peace of mind side, it’s something to weigh if you’re going to get through that first year. You may be better off saying, ‘I’ll put that [onto my mortgage], but I’ll do that on my first anniversary.’ ”

If a client is planning to buy at his maximum and he has high debt levels, opting for a cheaper home to give themselves some breathing space for those expensive first few years of ownership, is a prudent idea.

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