So you’ve decide to leave the world of being a renter to become a home owner.
The Okanagan Real Estate Market is heating up in Kelowna, Vernon and Penticton, interest rates are relatively low and people are flocking from Northern Alberta/British Columbia in record numbers. Now seems like a great time to be a home buyer.
Do you buy a single family home, semi-detached, town house, or condominium? Maybe buy in Rutland, Lower Mission or Glenrosa? Should you spend extra to have a legal suite, larger yard or to be near to schools?
If this wasn’t enough, now comes the meetings with lenders to be approved for a mortgage. The rate your approved for, and the amount you decided to borrow will make the difference between having a dream home or a mortgage nightmare.
Most of buyers have an idea of what kind of house they want, but over look the impact of a mortgage will have on their financial house. (Make sure to check out my budget worksheet PDF link below to help with you with the before and after).
Here are four things to look out for as you move toward home ownership –
Review your ACTUAL Cash Flow
Don’t get confused. Your GDSR (Gross Debt Service Ratio) is used to see how much house the lender THINKS you can afford. What you can ACTUALLY afford is not the same. The bank maybe OK with you borrowing $475,000 but you don’t have to.
Being trapped by a large mortgage payment can make you regret the home you purchased.
Use the Home Buyers Plan
How would you like and additional 20% cash to put towards furniture, pay off credit cards or put in your emergency fund. Using the Home Buyers Plan you contribute your cash into a individual RSP and then withdrawing the balance without paying with holding tax to use as a down payment.
There is a limit to how much you can use, the money must be in the RSP for 90 days to qualify for the contribution receipt, and you must pay the RSP back over time. Check out the latest on the Home Buyers Plan.
The Home Buyers plan is like having your cake and eating it too. You get use your money for a home purchase and get potential tax refund as well.
Dealing with your Personal Debt
If you own too much personal debt you chances of being approved can be drastically effected. The calculation used by banks and lenders use is TDSR (Total Debt Service Ratio).
Based on your family income up to only 40% of your income can go towards debt repayment. The simple rule is to have as little debt before you go looking for a mortgage, and no outstanding balances over 20% and at zero if at all possible.
Have a Written Plan
Buying a home is only part of your financial game plan. When putting a home purchase together making the right decision can have a positive effect on all areas of your personal finance.
Having enough insurance, if necessary, to pay off the mortgage, money in an emergency fund, having a debt freedom date established, and achieving financial independence on your own terms all should be considered.
Then you can follow up your plan, and make sure the choices you are making today are good for today and taking you where want to be in the future.
Buying a home should be part of a financial house you can live with.
Download Budget Worksheet PDF