Home buying season is officially here and when it comes to your finances there are dos and don'ts that come along with the often-overwhelming responsibility of taking on a new or higher mortgage.
Here is a list of the top dos and don'ts to keep in mind when you're shopping for a home.
Ensure you're in a good financial place.
With the increase in minimum down payment (10 per cent minimum on the portion of the price of a home over $500,000), it's important to review your financial plan and ensure you are ready to make one of the largest purchases you'll likely ever make. When it comes to deciding on the amount to put down on your home, everyone is different. Some may want to minimize debt as much as possible while others may be comfortable with a higher mortgage if the investment returns look promising.
If you're a first time homebuyer, consider borrowing from your RRSP if it makes sense. You can withdraw up to $25,000 tax free (up to $50,000 per couple) under the federal governments Home Buyers Plan. First time home buyers are also eligible for a first-time Home Buyer's Tax Credit of up to $750 and may be eligible for a refund on the land transfer tax.
Whatever you choose, it's important to ensure you have a safety net in place. You never know when you will have a leaky roof or your furnace breaks down.
Keep the emotion out of it.
Buying a home can be a very emotional process which is why it's essential you know your budget before getting emotionally attached. Get pre-approved for a mortgage BEFORE you begin your search. Even if you just start looking casually, you may stumble upon a place that feels like home, and at that point it may be more difficult to stick with what's affordable if you don't have a set budget.
Identify your priorities. What is a "need to have" versus a "nice to have." One way to weigh out the differences is by making a list of the top must-haves and rating them on a scale from one to ten.
When it comes to keeping the emotion out of your decision-making, waiving a home inspection is another big no-no; while you may be over the moon about a home you found, it isn't worth the risk of sacrificing potential unforeseen problems down the road.
Mortgage broker versus banks.
In the past, it was commonplace for homebuyers to resort to their banks for their mortgage requirements and needs, but these days there is an increasing presence of mortgage brokers. Mortgage specialists have access to a range of lenders and rates and can negotiate the lowest rate on your behalf.
Say no to mortgage insurance.
Here's why: with mortgage insurance, everyone at the same age pays the same premium. There are no discounts to be had for a better than average lifestyle, health status, etc. Additionally, mortgage insurance benefit value declines as you pay your mortgage. So even though you will continue to pay the same price for insurance, it will decrease in value and it will be gone when your mortgage is paid off, even though you may have ongoing insurance needs.
Location, location, location!
The farther away you are from your place of work, the more you may end up spending every month on your commute. Weigh the extra commuting expenses after tax credits versus the incremental mortgage payment on a property that would not only make your daily commute shorter and less expensive, but also save you a lot of time.
Happy house hunting!
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