Are you financially prepared to buy a home?
When it comes to buying a home or real property, the decision-maker has to prepare all aspects that’ll influence the outcome of your decision. One would be the decision-maker’s emotional readiness to take on a huge responsibility. Another is mental readiness in relation to scheduling time and priorities. Lastly, physical readiness of moving from a rental or starter home to your dream home, or physical task of taking on new investment is another consideration.
The most important aspect of buying a home or real property is the financial readiness of a home buyer or property investor. If you lack the necessary financial resources and requirements, it may create a damaging domino effect on your budget and financial portfolio, affecting other areas of your life as well.
The most crucial information a home buyer or property investor should know is the cost of buying a home. Most people that are unaware or not properly advised about home buying and property investing tend to prioritize or focus on areas such as, utilities and amenities (electricity and air conditioning) or the more fun and glamorous parts of home buying, such as interior design.
This can be a trap however, since focusing on these elements will take up your funds that are supposedly allocated for more important costs involved with when buying property. In addition, allotting so much effort on these other elements will drain your time and energy, which should be used in compliance with the prerequisites of buying a home.
Costs that home buyers and property investors should watch out for
With the average pricing of Canadian property at more than $450,000, you need to prepare for the down payment, which normally ranges between 5% to 20% or more. Want to pay less interest? Aim for a bigger down payment in order to lessen your loan amortization and shorten your mortgage term.
Another cost that forms part of buying a home are closing costs. Home buyers and property investors need to save up for these, which makes up about 2% to 4% of the property cost. This typically includes land transfer tax, title and mortgage insurances, and home inspection.
This is part of the cost of buying a home that’s paid on the day the purchase of your home or property is complete. Hiring a lawyer or solicitor is beneficial in securing your property and making sure that everything is in order.
Prior to securing a mortgage, you’ll be required to have home insurance to protect the home, along with furnishings and other assets in the home. Home insurance also provides liability coverage against your home and the property.
Prerequisites for purchasing a property that determines the cost to buy a home
Proof of income to determine capacity to pay/loan money
When you apply for a loan, as in the case of a mortgage, the first requirement is proof that you have a reliable income stream representing your capacity to pay. Some examples are payslips, an employment letter, bank statements and income tax returns.
It’s necessary to have a good credit history in order to qualify for a loan or mortgage. Your credit score is made up of the transactions you’ve done over the course of your life from the time you have made your first income, expense and investment.
Certificate of Employment/Business
Your proof of employment or proof of business confirms your revenue stream.
Which factors drive the cost of buying a home up or down?
Availability of properties in the market
Market prices are usually driven up or down by a surplus of available houses – or lack thereof. In determining the cost of buying a home, make sure that you’ve considered the general property landscape. How’s your locality faring so far compared to other markets? Is your locality more densely populated? Do you drive by a lot of for-sale signs within and outside your neighborhood?
Growth of the economy
While this is more macro in nature and retail home buyers may not directly feel the impact, the economy is a major driving force of housing prices. A robust economy allows for more financial flexibility that can be used for a majority of investments, the most popular of which is buying a home. A good economy influences the buying behavior and capacity of consumers, including buying a home.
This is closely related to economic growth since a failing economy results in massive unemployment. Losing a job means having no source of income; this affects spending and investing capacity. Although having a home is one of Maslow’s hierarchy of needs, people will opt for renting or downsizing, compared to buying a new property.
Legislation is a crucial factor in the increase or decrease in the cost of housing. Applying measures that are too stringent will discourage home buyers and property investors, while the lack of measures and policies in place will result in a real estate bubble.
Cut down on risks by seeking expert advice from a trusted mortgage broker
The cost of buying a home differs based on location, preference and circumstances. While we’ve enumerated the basic costs that you should watch for, getting everything in order can still be daunting. Daisy Raouph’s mortgage brokers are here to provide you exemplary services, so you can prepare for purchasing or investing in a home while sleeping soundly at night.