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Buying Your First Home

With interest rates still relatively low, many renters are starting to think about purchasing a home of their own. While simple rental cost vs. mortgage cost comparisons can be very attractive, buying a home is a serious commitment, and there are many factors to consider.



► How long do you plan to live in the home?


Selling a home costs money. If you potentially may have to move in the short term, the value of your home may not have appreciated enough to cover the costs of buying and selling.


The length of time that it will take to cover those costs depends on various economic factors. These days, the average appreciation tends to sit at around 3% - 5% per year in our Ottawa market. In this case, you should plan to stay in your home at least 3-5 years to cover buying and selling costs. The real estate market can be particularly volatile, however, and dramatic swings up and down are not uncommon. 



► How long will the home meet your needs?


What features do you require in a home to satisfy your current lifestyle? What about five years from today? People tend to remain in homes longer than they initially intend, primarily due to the work and expense associated with moving. Therefore it is worth considering a home with room to grow. Could the basement be turned into a den and extra bedrooms? Could the attic be turned into a master suite? Having an idea of what you’ll need will help you find a home that will satisfy your needs for now as well as years to come.



► Your financial health – your credit and home affordability


Is now the right time financially for you to buy a home? Would you rate your financial picture as healthy? Is your credit good? While you can always find a lender to lend you money, people with poor credit tend to pay far more.


Some say that you should refrain from borrowing for as much as you qualify for because it is wiser not to stretch your financial boundaries. The other school of thought says you should stretch to buy as much home as you can afford, because with regular pay raises and increased earning potential, the big payment today will seem like less of a payment tomorrow. It is, however, important to stay within your comfort zone.


Purchasing a house involves many up-front and ongoing costs, and the stress of worrying about those costs often outweighs the satisfaction that may come from owning a slightly more costly home.


To determine how much home you can afford, talk to a lender or go online and use a home affordability calculator to establish your mortgage limits. These calculators will give you a range of what you may qualify for. Then call a lender. In today’s home mortgage market, many lenders are customizing financing options to meet unique situations.


It’s important for you to know all of your options when it comes to financing.



► Where will the money for the transaction come from?


Typically, home buyers will need some money for a down payment and closing costs. However, with today’s broad range of loan options, having a lot of money saved for a down payment is not always necessary – if you can prove that you are a good financial risk for a lender. If your credit isn’t stellar but you have managed to save 10-20% for a down payment, you will still appear to be a very good financial risk to a lender. High-ratio mortgages can be a good option for those who haven’t managed to save a large chunk of money but often these have additional costs associated with them.



 The ongoing costs of home ownership


Maintenance, improvements, taxes, and insurance are all costs that are added to a monthly house payment. If you buy a condominium or townhouse, a monthly homeowner’s association, condo fee or maintenance fee will be an added expense. If these additional costs are a concern, you can make choices to lower or avoid these fees. Be sure to make your salesperson and your lender aware of your desire to limit these costs.


If you are still not sure whether or not the purchase of a home is right for you at this time, you may want to consult with an accountant or financial planner to help you assess how a home purchase fits into your overall financial goals.

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