Tips For Buying A Home

First of all Congratulations!

The following is a step-by-step process that we go through with our clients in order that the process of buying a house has few, if any, surprises or regrets.

Before you go and look at a single house, make sure that you are prepared to buy and know your numbers. Otherwise you will buy on emotion only and that can be a very dangerous and costly mistake.
Now that you are aware that Emotional Reasoning will always win over Financial Reasoning, let’s look at how to get into your house effectively.

The first step is to learn where you are spending your pennies. What is meant by this is to know where you are spending your money on a monthly basis. After all, how are you going to know if you can afford the house if you have no idea of your budget numbers? To do this, keep track of every single penny you spend for two consecutive months (for couples, this is not a finger pointing exercise), add the numbers up, divide by two and then add 1/12th of your annual expenses and now you have a good idea of your monthly budget numbers.

Now that you have your monthly budget, the next step is to know how much excess you have to put toward a monthly mortgage payment. What I would suggest is that you take an amount that is equal to 65% of the excess (the amount left over in your budget plus the rent you are presently paying if applicable) and use that as the maximum you can afford in a mortgage payment. The reason it is so low is that you will have taxes and upkeep and other expenses that you do not likely have presently. For example, if you are presently paying $1250 in rent and have an extra $1,000 of unallocated funds per month, then you can afford $1900 in a mortgage. That is the $1250 rent plus 65% of the excess or $650. Just because that is what you are likely able to afford, it does not mean that you have to spend that much.

The next step is to determine whether or not you can qualify for a mortgage that requires a $1900 payment. First secure your credit bureau report from www.equifax.ca, and then make a copy of your last two tax returns and Notices of Assessment and take these three items to a bank and inquire as to what they would offer. Make sure that you do not let them do a credit search as that will lower your beacon score (credit worthiness ranking) which you do not want at this time. The bank should be able to say that presuming what you are showing is accurate, the amount of mortgage we would offer is $X and the monthly payment is $Y. You can now determine how much of a home you can afford by adding the money that you have to put down plus the mortgage together. Now you have your parameters to work with and you can now proceed to the third step.

The third step is to look on www.mls.ca and narrow down the area that you wish to live and determine if there are houses in that area that you can afford. If not, then either stop looking for a house, you cannot afford one, or look in another area. Once you have an area that you can afford, the next step is to determine which real estate broker you are going to work with. We recommend that you work with a real estate broker as they are the professional and it does not make sense to work by yourself as you do not have the experience that the broker does. If the transaction is smooth, you can survive without a broker, but if there are multiple offers (for example) then you want that expertise on your side. The only criterion that we recommend when choosing a broker is that you feel comfortable that the broker is going to work with you effectively.

Before you hire a broker, make sure that you have a final number in your mind as to what you can afford in the final cost of the house. Take 85% of that amount and tell the broker that is your absolute limit. Why, most brokers will try to stretch you a little bit so better to work with a lower than your maximum amount.

The next item is to make sure that you never spend one penny more than the maximum no matter what. Why, because there are always hidden costs in owning a home and you do not want to become destitute but a homeowner.

Second last item: do not forget the costs of legal fees, commissions, moving, and inspector (always have a prospective home inspected) etc. in your calculations.

The final item: never take the bank mortgage insurance as it is almost always more costly and fraught with negatives so call me for your insurance instead .