Can you afford to buy a home in today’s real estate market?
by Dave Williams
As long as you’ve always paid your rent on time you should be fine with a mortgage, right?
Not Quite…the largest challenge we find first time home owners deal with in the first year of owning the home is the change in finances. Aside from saving up for the costs of buying a home, there will be a change in the cost of living when you own a home.
Many jokingly call it house poor, but if you plan for it and walk in armed with a plan and the knowledge you need owning a home can mean an upgrade for your quality of life.
The Cost of Buying a Home
Aside from the cost of the home it’s self, and the 5%-20% down payment you saved up to make the purchase there are approximately 2-3% of the homes value in additional cost. This is one of the reasons we suggest having 7.5% saved up before starting your home search.
Home Inspections $350-$500 (Mike Holmes inspections go for $1,000)
Septic Inspections $350-$500 (only on country properties)
Condo Status Inquires $100-$200 (only on Condos)
Legal Fees $800-$1,200
Disbursements up to $2,000 (your lawyer will give you an exact number, but this depends on how much the current owners have pre-paid, taxes, gas, water, ect.)
Land Transfer Tax (LTT are doubled in the city of Toronto)
- 0.5% of the value of the consideration up to and including $55,000,
- 1% of the value of the consideration which exceeds $55,000 up to and including $250,000, and
- 1.5% of the value of the consideration which exceeds $250,000, and
- 2% of the amount by which the value of the consideration exceeds $400,000 for land that contains at least one and not more than two single family residences.
- First Time home owners are eligible for a refund of up to $2,000
For a more detailed explanation of what each cost of buying a home entails visit this blog.
I’d like to take a moment before we get into the meat of your home maintenance costs to give you the BIGGEST MONEY SAVING TIP about your mortgage. Don’t roll anything into it!
If you got CMHC mortgage loan insurance you are given the choice to pay it outright or roll it into the mortgage, on a $350,000 home it would total around $10,475, if you used a real estate agent to buy a home and allowed the seller to pay them (a very common practice) you’ve also rolled that $8,750 into your mortgage. That $19,225 will cost you an extra $92.month and total up to $27,413 over the course of a 25 year mortgage, an extra $8,188.
The Cost of Owning a Home
You’ve bought a home! Congratulations!
Now you’ll begin to discover there are a few added costs to home ownership above your mortgage payments, be prepared.
First of all, if you had an all inclusive rent payment your utilities (water, gas, electricity) are now going to be added costs. When choosing a mortgage payment your comfortable with be sure to consider this, and adjust accordingly.
Additionally there will now be Municipal Taxes which typically fall in the 1.2% – 1.5% range. So a payment of $3,600 on a $300,000 home is within reason. Usually this is a one time charge each year, though your mortgage lender may offer to collect this as part on your mortgage (but not rolled into) and make the payment on your behalf.
Home ownership comes with security…and responsibility. You now need to ensure your investment is kept in top shape. There will be seasonal upkeep needed, gutter cleaning in the fall, snow removal (driveway, walkway, roof in snowier climates) & salting in the winter, and often lawn grading in the spring to avoid water leaks. As well as regular maintenance on your mechanical systems, the furnace, A/C, appliances, ect. It’s suggested that home owners should bank 3% a year to cover these costs and prepare for the big overhauls.
Save up for the big ticket items as every 10-25 years a home is going to go through a furnace, new windows & doors, & new roof.
While all of these costs can be prepared and planned for it is the unexpected cost that pop up in the first year we have found to be so concerting. Look for sellers offering home warranties of consider getting one yourself for $300. They are worth the peace of mind.
With this handy tool you can calculate the advantage/disadvantage of owning a home vs renting.
Hope this helps you understand real estate a little better.
As always if you have any real estate questions ask them below, or contact us directly at 613-788-2113.