How to get your finances in order before buying a home

Buying a home -- especially if it's your first home -- can be very
exciting. However, home ownership also comes with greater financial
responsibility. It's important to know exactly how much you can afford to pay for a house in order to avoid any unpleasant surprises.

The first thing you need to determine is your net worth. To calculate
your net worth you will need to look at your current monthly expenses and your monthly debt payments as well as your assets including property, vehicles you own, savings, RRSPs and other assets. This information will provide a snapshot of your current financial situation and indicate the maximum house price you should consider.

Start by examining your present budget to see how much you are
spending each month on household expenses. Canada Mortgage and Housing Corporation (CMHC) has several handy financial tools available online at www.cmhc.ca, such as the Current Household Budget worksheet to help you with your calculations.


 
Next, you need to know how much debt you are carrying. This will not
only help you determine if you are financially ready for home ownership, but
when you decide to buy a home, mortgage lenders will ask for this information.
You can use CMHC's Monthly Debt Payments Table to determine your current monthly
debt payments.


With a clear picture of your financial situation, you should be able
to establish what you can afford in monthly housing costs. The maximum home
price you can afford will depend on a number of factors, but the most important
are your gross household income, your down payment and the mortgage interest
rate.


Financial institutions follow two simple affordability rules to
determine how much you can pay. The first affordability rule is that your
monthly housing costs shouldn't be more than 32% of your average gross monthly
income. The second affordability rule is that your entire monthly debt load
shouldn't be more than 40% of your gross monthly income. This includes housing
costs and other debts such as car loans and credit card
payments.


After making all the necessary calculations, you should have a good
idea of how financially ready you are and if you can confidently proceed with
the home ownership process. If, however, your calculations show that you might
have trouble meeting monthly debt payments, you may need to step back and make
some adjustments in order to improve your financial situation and get approved
for a mortgage.


For example, try paying off some loans first or saving for a larger
down payment. Also, take a closer look at your current household budget to see
where you can spend less and consider lowering your price
range.


Some other helpful strategies may include meeting with a credit
counsellor to help you figure out how to minimize your debts, buying your home
through a rent-to-own program which are sometimes provided by the builder or a
non-profit sponsor, or asking the housing department of your municipality if any
there are special programs to help homebuyers.


There are many steps involved in buying a home -- including being
financially prepared. CMHC's Homebuying Step by Step: A Consumer Guide and
Workbook will lead you through the homebuying process in five simple steps, and
includes several helpful worksheets and checklists. Get your free copy at
www.cmhc.caor

Click Here for Calculators to help determine approximate costs for your mortgage!!

TIP OF THE WEEK!!
When begining to search for a mortgage, make sure that you do so within a 2 week period so it has as little impact on your credit score as possible. Each time you give out your Social Insurance Number (SIN) for a credit check your are docked points from your score. If you can do your mortgage hunting within a two week period you will only be docked for the first credit check.  Keep track of your credit score, try to limit yourself to 1-3 credit checks a year and when you do get your credit check have the representive review it with you. Mistakes happen quite often and the report will show which bills have been paid on time and the number of times your credit has been checked. If you find mistakes they can be fixed!

 

Are you looking for a Realtor in Halifax? Thinking it may be the time to
sell but arn't quite sure? Thinking about when you should make the move and set
out to make a  purchase? I can quickly provide complimentry pressure free
appraisals or answer any questions you have regarding mortgages, renos and real
estate. Contact me or feel free to leave a public comment or question below.
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