Monday, August 22, 2011

Your Home Purchase: Part 3

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 3: The Budget
So now that you have a preapproval, and you’ve been taking strides to trim down your household spending over the last few months, it’s time to come up with a real budget that will determine the type of house you can afford.
This is usually a number that is significantly lower than the maximum made available to you by your lender (mainly because your lender only takes certain expenses into account, such as heating costs and outstanding debts, when determining this magic number. Others, like food, are completely left out of the equation).
The best way to come up with a realistic price tag is to look at where your money is currently going and work backwards from there to see what’s left over for mortgage costs and household expenses. At this point, it’s important to be realistic. You’ve already determined what extravagances you can do without – and which ones you definitely must hang onto. If you’re a couple that enjoys going out for dinner more than once a week, embrace this fact. There’s absolutely no use in saying that your weekend dine-outs will end once you sign that mortgage. In fact, chances are you’ll continue to dine out – and the additional cost will leave a growing balance on your credit cards.
It’s also important to keep in mind that ownership carries more costs than renting. Be sure to factor in condo fees, property taxes and unforeseen maintenance costs into your monthly housing budget. You may also want to factor in non-housing related costs for example, if you’re moving from the city to the suburbs, you’ll likely have to pay for the additional costs of a car. If your new home is taking you further away from work, your gas bill will likely increase as well.
Once you know how much money you can devote to housing on a monthly basis, put those mortgage calculators back to good use and figure out how much of a total price tag you can afford. Once you have that maximum number, try not to look at homes that fall outside of it. It’s easiest just to avoid the temptation all together.

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