So you’ve gone through four different apartments in five years. You’re sick of moving, you’re sick of paying rent, and you’re sick of having landlords who can’t even be bothered to fix a leaky faucet until your lease is almost up. You’re making good money with a great job, and you’re thinking about settling down. The thought of taking out a mortgage and buying a home of your own has been sitting in the forefront of your mind for a while.
But how do you know when it’s time to buy your first home? True, the Canadian mortgage industry is going through some significant changes this year that effects all home owners (one of which involves a mortgage stress test for those putting less than a 20% down payment), making the fiscal responsibility of first time buyers much more important.
While you may not be able to buy that dream home you’ve been looking for as a first time buyer you don’t need to be intimated by the latest changes if you have everything in order.
But that can be hard to figure out. Whether you choose to hire a Mortgage Professional or not, it’s time to get out of your tiny rental apartment and into your first home, we’ve compiled a list of the 5 signs that indicate that you’re ready to stop renting – and to buy your first home.
You’ve Got Your Finances In Order (Seriously!)
Don’t ever lie to yourself about your financial standing if you’re looking to buy a house. That’s a one-way-street to ForeclosureVille – and nobody wants to go there.
If you’re thinking about buying a house, you have to be brutally honest about your financial situation. How much credit card debt do you have? Do you have outstanding student loans? Auto loans? Personal loans?
If you do have debt, that’s not necessarily a bad thing – but do you have enough money to keep making payments and tackle a mortgage and related exp
enses at the same time?
If you have more than a small amount of credit card debt, the answer to this question is probably “no”. Credit card debt is a sign that you’ve been stretching your finances to the limit already – and it’s going to be better in the long run if you focus on paying off your personal debts before taking out a long-term mortgage.
Your credit score should also be a consideration – the better your credit the easier it will be to obtain a loan from your lender but every lender will have different requirements. If you’re credit score is low or non-existent it could be worth saving for a few more years in order to raise your score and secure a better long-term rate on your mortgage.
You’ve Saved Enough Cash To Put Down A Beefy Down Payment
Down payments are a huge part of real estate. We won’t go into the math here, but putting down a large, 20% down payment can save you literally tens of thousands of dollars when buying a house, as compared to a 10% or lower down payment.
The recent changes to the Canadian mortgage industry now include a “stress test” for any buyer putting down less then 20% of the home up front. This is to determine if the borrower can afford to pay back the loan against a five year fixed 4.64% loan.
Despite the changes buyer still need to consider additional costs such as mortgage insurance, closing costs, taxes, repairs, furnishings and more when purchasing a new home.
Can you really handle all that if you can’t handle a large down payment? If the answer is “No”, you’re probably not ready to stop renting just yet.
You Can Afford Your Monthly Mortgage Payments – And Unexpected Expenses
Being a homeowner is expensive. Like, really expensive. It may seem like your mortgage payment is comparable to the rent you’re paying now, but you’re not factoring in:
Homeowner’s Association Fees, if applicable
Potential home repairs and maintenance
Water, sewer, garbage, electric bills, or whatever other utilities may be covered by your current landlord
Altogether, these fees can often double your mortgage plus the principal you pay every month. If you put down a small down payment on a home that’s much bigger than you can afford, you may find yourself struggling to keep your head above water.
As a rule, your monthly payment should be no higher than 25% of your monthly take-home pay, including insurance and taxes. If you can’t afford that, you’re not ready to buy the home that you’re considering.
You’re Ready To Settle Down – For Real
Are you in a job that you’re going to keep for years? Decades, even? Do you have a plan for the next 5 years? Are you done moving between provinces and cities?
If the answers to these questions are “yes”, you may be ready to settle down and purchase a home. Buying a home is a long-term investment – so if you sell your home within a few years, chances are you won’t even cover your closing costs.
When you buy a house, you’re making a commitment to settle down. It doesn’t have to be forever – but it should be more than a couple years. So take some time, and truly consider whether you’re really ready to make the commitment of time, money, and resources required to settle down and purchase a home.
You Can Fix Things – Or Pay Someone Who Can
Here’s the thing about owning a home. Things go wrong – a lot. Furnaces break. Air conditioners conk out in the middle of summer. Chimneys mold, rot, or break. Pipes leak, air ducts snap, wood rots, toilets need to be replaced, appliances fail. And there’s no landlord or service hotline to call when these things happen – as a homeowner, you’ll be responsible for your own home.
If you’re handy, you can save a lot of money by doing basic repairs and maintenance yourself. But many of us are not – we wouldn’t know the difference between PVC pipes and HDPE pipes even if you slapped us upside the head with one – so you have to factor repair and maintenance costs of your home into your budget.
The joy of fixing broken things is a huge part of home ownership. You’ll never expect these issues – but you should always be prepared for them. If you can’t afford to pay for repairs and maintenance work on top of your mortgage, fees, principal, and other debt, you may not be ready to buy a home.
Don’t Let Us Scare You! If You’re Ready, Now Is A Great Time To Buy!
We’re not trying to scare you off from taking a mortgage out – far from it! The Canadian real estate market is strong, and still bouncing back from the 2007-08 financial crisis, so now is a great time to get a great rate on a fantastic new home.
We’re simply asking you to think about your situation. Buying a new home and taking out a mortgage isn’t a step that should be taken lightly – it’s likely to be the single biggest investment that most of us ever make in our lives!
So take the time to work through this article, and be honest with yourself. Do you have your finances in order? Have you got enough for a big down payment? Are you ready for unexpected expenses? Are you going to (finally!) settle down in one place? And can you handle upkeep, repairs, and other unexpected home ownership costs?
If your answers to these questions is “yes”, congratulations! You’re ready. And if you answer “no” to any of these questions, you may want to hold off for a year or two, and then re-evaluate your situation.