Monday, August 8, 2011

Your Home Purchase: Part 1

The average Canadian homebuyer takes 11 months to plan their purchase, according to CMHC. If you’re thinking about buying in the next year, our four-part series will explain how you should be dividing your time.

Part 1: Getting your ducks lined up
While you don’t necessarily need a year to plan your home purchase, a little preparation never hurt anyone – in fact, it’s been known to save people money. Below are a few things you can do right out of the gate that can save you hassles (and plenty of headaches) in 11 months time:

a) Become one with your credit score
There’s nothing worse than finding your dream home and realizing, upon talking to the bank, that you don’t have good enough credit to obtain a mortgage. That’s why the more in tune you are with your credit score and the earlier you’re in tune with it the better.

Both of Canada’s two major credit bureaus Equifax and TransUnion offer one free credit report per year. Take advantage of this offering to make sure you don’t have any outstanding bills you didn’t know about, or incorrect charges on your report. If you do, a year is usually enough time to clear up any minor blemishes so that your score is in tip-top shape when it comes time for that pre-approval. Remember – the better your score, the better your rate (and the more money you’ll save in the long run).

b) Establish your household budget
If you don’t already have one, now is the time to sit down and draft an accurate household budget. This means going through your expenses, tracking your spending and figuring out which luxuries you can’t live without and which ones you might be able to trim.

This will likely be a work in progress, and something you’ll revise over the coming months as you (and, potentially, your partner) receive raises, change jobs or simply learn to reign in your spending. Once you get into the habit of it, you’ll be able to determine how much you can really afford to spend on housing every month, which will come in handy later on.

c) Estimate your potential mortgage payment.
While you don’t have to know the details quite yet, it pays to know roughly how much your ideal home is going for price-wise, where interest rates are sitting, and how much you’re aiming to have for a down payment.

Once you have these numbers in mind, you’ll be able to plug them into an online calculator and figure out how much a monthly mortgage payment is likely to cost. Once you know this magic number, determine the difference between that and the current rent you’re paying and sock it away. Not only will this help you get used to the added costs of a mortgage payment, but it will also help you establish a bit of a savings fund either to strengthen your down payment or use as an emergency fund for the day something inevitably needs repair in your new home.

-Courtesy of Axiom Mortgage Partners

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