How Much Home Can You Afford?

How much home can you afford?

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What’s the number one question first-time homebuyers should ask themselves when considering buying a house or condo? It’s “How much home can you afford?” There are a number of things to consider when deciding whether a home purchase is feasible.

Many lending institutions and banks offer mortgage calculators on their website where you can find the estimate on the maximum purchase price and maximum monthly housing cost that you can carry. Here are some other things to think about when asking yourself how much home you can afford.

Maintenance: A property often requires regular upgrades and some can be pretty pricey, like replacing the roof, windows or a furnace (this could cost thousands of dollars). However, if you hire a professional inspector to check everything out prior to purchasing, you can help avoid possible repairs and renovations after you move in.

Land transfer tax: There are no capital gains to be paid on selling a personal residence but you do have to pay a tax on the entire value of the property at the time of buying. If you are already prepared for such an expense when deciding how much home you can afford, it won’t come as such a shock. “We immediately started saving for the land transfer tax when we began house-hunting,” said first-time homebuyer Michael Conry. “It was a few thousand dollars so it helped a lot to have that money stashed away.”

Commissions: If a homeowner sells with commission, they can expect to pay at least 5% of the selling price in commissions, which can be a large sum of money. However, when you choose to sell without commission via the ComFree network, then this is a moot point (and translates to thousands more in your pocket).

Property taxes: Local municipal taxes, which often include property and school taxes, are something else to take into account when exploring how much home you can afford. These can be added to your monthly or bimonthly mortgage payments, or paid separately at different times throughout the calendar year.

Insurance: If you have a mortgage, you are required to have fire insurance for the full replacement value of your property. Proof of such insurance is often requested prior to the final purchase. Shop around and find the best rate for optimal coverage in order to get the best bang for your buck.

Utilities: Many first-time homebuyers go from apartment or condo living to home-owning, and they don’t think about the increased costs in utilities. However it’s imperative that heating, hydro, gas and other bills be factored into the budget so that you can develop an accurate reflection of what your monthly house expenses will be. “In our condo we only had an electric bill, but in our house we have electric and gas,” said first-time homeowner Jackie Spevack. “Our utilities have tripled since we moved.”

Closing costs: When you buy a property, a number of forms need to filled out by certified experts – expect that lawyer fees, mortgage appraisal fees, home inspection costs, and possible mortgage discharge fees will be a part of the home-buying process. “When calculating closing costs, assume you will need an additional 1.5 to 2.5 per cent of the purchase price to cover such things as the home inspection, legal fees, land transfer tax, property tax, property insurance, utility hook-ups and moving costs,” said Chris Kiskunas, a regional sales manager at the Royal Bank of Canada. It should be noted that the Home Buyers’ Tax Credit (HBTC) can help offset these costs.

A home is the largest purchase you’ll ever make, and it is extremely important to ensure that the household budget can easily carry the mortgage, as well as the ongoing costs that are involved in owning a home. Otherwise, new homeowners could face the prospect of forgoing vacations, putting off having kids and surviving on tuna just to pay for a roof over their heads.

With proper planning and going into the investment with a clear understanding of what is expected financially, homebuyers can enjoy the freedom and comfort of living that comes with owning a home once they understand how much home they can afford.

If you’re ready to buy or sell a home, visit today.

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