by Kent Braaten
on Wednesday, March 6th, 2019 at 10:46am.
Before you start house hunting, be sure you are comfortable with the obvious and less obvious costs of home-ownership.
The Price Range
The first thing you need to do is determine how much you can afford. Being pre-approved for a mortgage can help set a guideline for your monthly mortgage payment. Keep in mind one-third of a mortgage payment includes property tax and any other secondary financing or condominium management fees, if applicable.
Test this guideline by reviewing your current spending. Do you, for instance, have a commitment to a car or personal loan ? How much do you spend on rent, clothing, transportation, entertainment and travel? Would the guideline mortgage payment still be comfortable considering these expenses?
Consider the cost of living in the home. How much will it cost to heat monthly? What about the monthly cost of insurance, electricity, water, maintenance - painting, repairs etc.? If you are considering buying a condominium, how much are the monthly management fees? How will they affect your ability to carry on a mortgage?
Predicting the cost of living in a home compared to living in an apartment can be difficult. There is a rule of thumb to help you estimate the difference between the two. Take the value of the home you are considering and multiply it by 3 per cent. Then divide that figure by 12. In our example of the $125,000 home, the monthly cost using this formula would be roughly $312 in addition to mortgage and taxes.
The Down Payment
The size of your down payment is a major part of your mortgage consideration. Most lenders will require a minimum down payment of at least 10% of the purchase price of the home. For instance, our example of a home in the $125,000 thousand range would require a $12,500 down payment. You would then need a mortgage of $112,500.
When you have made an offer, had it accepted and begin to finalize the purchase, there are other costs to be paid in full. There are legal costs, registration costs, possibly house inspection costs and probably a land transfer tax. Your real estate agent will give you an estimate of these costs. Be sure to discuss with your agent the question of what lenders call "interest adjustment date", depending on the date of your closing and the date of mortgage payment upon closing. Be prepared to pay for any heating oil left when you take over and to reimburse the seller for property taxes paid in advance. Don't forget about moving charges, your mover will give you an estimate before you move. You will have to pay the movers upon delivery of the furniture.
Some can view home-ownership as all work and no play. However, the joy of having a place to your own usually outweighs the work involved. Be sure you get the most from the experience by buying a home within your means.