Without a doubt, buying a house is probably one of the biggest purchases you’ll ever make. And planning for your first one is an even bigger battle.
According to a 2016 survey, eight in 10 Canadian millennials (aged 18-35) intend to buy a home within five years. But of this same group, more than two thirds (70%) say they haven’t saved enough, nor do they have a firm budget in mind.
But fear not. Our team of Mobile Banking Specialists uncovered a list of things many first time homebuyers might overlook when getting their first mortgage, and how to best prepare before signing off on the dotted line.
Not seeing the true cost of buying a home.
Fees, fees, fees. According to the same survey, 56% of millennials who bought a home in the last two years ended up overspending on their budget. Ouch.
One explanation for this is not factoring in additional fees that you may incur as a new home owner, including:
- Legal Fees
- Inspection fees
- Appraisal Fees
- Strata Fees
- Annual property insurance
- Annual taxes
- Cable hook –up
- Moving costs
Forgetting about insurance.
Insurance = reassurance. Mortgage insurance provides protection if you don’t have enough personal life or disability insurance. If you need to make a claim, mortgage insurance will pay off all or a percentage of your mortgage balance or make mortgage payments while you are unable to work.
Financial Institutions also offer life and disability insurance for your mortgage. It will protect you from losing your home if you’re unable to make mortgage payments due to injury, personal illness, or death. These topics, while scary to think about, are important to factor in.
Not planning for emergencies.
Accidents happen. Emergency funds are described as a financial safety net. Do you have funds set aside if the furnace or hot water tank unexpectedly needs replacing?
A good rule of thumb in Canada is to save up between 3 to 6 months’ worth of expenses (you can also aim to save 3 to 6 months of income). However, that may be difficult for most in the current real estate landscape. Saving a small amount for emergencies on a regular basis can make a big difference in the long term.
Not budgeting beyond the purchase price.
Budget like a boss. Consider all the ‘extra’ things that will make the house you buy the home you want to live in, and be sure to include them in your home purchase budget. Also factor in your day-to-day spending – food, entertainment, and travel all add up.
Also consider thinking outside-the-box about what could help you to buy a home. Aside from hitting up the Bank of Mom and Dad, you can take advantage of first time home buyer assistance offerings:
The Federal Home Buyers Plan gives each qualifying mortgage applicant the option of borrowing up to $25,000 tax-free from their RRSP to purchase or build their first home. You may also qualify for B.C.’s HOME Partnership Program, which offers qualified first time homebuyers a loan of up to $37,500 interest- and payment-free for the first five years, to assist with a down payment.
Get pre-approved, and then sit down with your budget and determine if the mortgage payment is affordable with all your other expenses identified.
If you need a hand with budgeting, our Mortgage Calculator will help you determine how much you can borrow.
A good rule of thumb? Plan early (and don’t underestimate the deposit)
Start planning early to make home ownership a reality sooner. Include saving for the deposit (usually the first payment you will need to make). Find a competitive mortgage to help make borrowing the rest more affordable.
A good Financial Advisor will take the time to understand your wants, needs, and most importantly, your reality.
You’ll want to be sure you’re getting the mortgage product, features, and rate that work for you. Our Mortgage team can help you choose the right mortgage for you and they’ll even help you save along the way.