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That is a very good question that many prospective home buyers never really ask themselves. Usually it is a first time home buyers, who think they can afford their own home finally. The operative word here is THINK. As a Realtor, obviously I would love to help my clients find a new home for themselves and their families. However, I also want to be their Realtor and their friend for a long time. If I don’t ask the right questions I am not helping them but rather getting them into a problem area that may take some time to get out of. I would much sooner lose a potential sale than risk my reputation and the financial well being of a client.
OK , what’s the right questions. The questions are actually simple ones. Can you afford a home of your own and if you can how much can you afford?
I know these sound like simple questions and ones that a person would ask themselves before they call a Realtor to look for homes for them. The fact of the matter is, many prospective buyers don’t actually know how much money they will actually have to spend to buy a home of their own.
Many times buyer will save up for a down payment and once they have reached that magic number they start looking for their dream home. The magic number is usually the minimum down payment of 5%. Lets use the number of 5% of $400,000.00 for this example. So the couple saves their $20,000.00 and calls a Realtor to start looking for a $400,000.00 townhouse for them. They find the perfect place after a couple of months looking and make an offer. They stay within their budget and the offer is accepted at $400,000.00. So they go to the bank for their mortgage and the surprises start.( If it is a new townhouse there will be 12% HST on it less the rebate but we will assume for this exercise the home is not new) They find out that there is somehting called the land transfer tax which is 1% of the 1st $200,000 and 2 % of the remainder,which in this case means an additional $6000.00, Legal fees will be around $1000.00, the CMHC insurance premium will be an additional 2.9% on the amount being borrowed or $11,020.00. There will also be an adjustment on the taxes so this could be around $1000.00. There will be a charge for an inspection of approximately $400.00 to $500.00 There could also be a requirment for a title search by the bank.
So as you can see there are many costs that you should be aware of and talk to your Realtor about before you start your search. In this scenario the couple thought they would have a mortgage of $380,000.00 and have a payment of $1978.00 amortized over 25 years. Instead they have a mortage of $399,520.00 with payments of $2080.00 a month over 25 years. On top of that, there are usually things in the home that you need to repair or change soon after you take possession. So you should have a couple of thousand dollars left in order to do these repairs. They may even be small things like buying a barbeque and some patio furnature. Anyway, bottom line is talk to a good Realtor before you start, to see if you are in a position to buy at this time. You may still want to buy but perhaps a smaller place to start
