Welcome to a brand spankin’ new series here at Financial Highway! This series will teach you the basics behind obtaining a mortgage for the very first time. Each Thursday we will cover a different topic on the basics of going for your first mortgage. Once we complete the discussion on mortgages we will move on to other personal finance essentials.
Part 1: Are you ready to purchase a home?
Before you even step foot into a bank you need to ensure that you’re ready to apply for a mortgage. Before you decide if you’re ready for a mortgage you need to ensure that you’re even ready to invest in real estate. Below are three questions that you must consider as you decide if you’re ready to purchase a home:
Do you have the savings?
This is not an option these days. You need lots of money saved up for a mortgage down-payment plus the million other expenses that will come along. It’s a common recommendation that you have about 20-25% (of the home value) saved up as a down-payment for your first home purchase. This number is what banks are usually comfortable with when it comes to loaning you money for a mortgage. Not only will this help you with your bank, but it will allow you to sleep better at night knowing that you’re not losing all of your money to interest payments.
Once you have the savings for a mortgage down payment you must begin to factor in all of the other costs involved in the process. A down payment is really just the beginning. Then you must factor in the basic costs for your home purchase:
- Lawyer fees.
- Real estate agent costs.
- Land transfer taxes.
- Basic maintenance.
Once the essentials are covered you then should consider saving up for some of the following expenses related to your first home:
- Property taxes.
- Home maintenance.
- Increased consumption.
- New furniture.
Once you’ve read over this list and check marked most of the items, you can then truly understand if you have enough savings to even apply for a mortgage.
Do you have steady work?
How steady is your current job? Times have long changed since our grandparents and parents started their careers. It’s now extremely rare to hear of someone that has been with the same company for 30 plus years in a cushy job with a standard daily routine. It seems like these days we all want to switch jobs and even careers on an annual basis. You don’t want to feel stuck at a job or stress about losing your job because you’re stuck with a hefty mortgage. Before you even consider a mortgage you must assess your current job to see if you’ll even be able to make your mortgage payments 7 months down the road.
Have you considered where you want to live?
You need to have a specific area in mind first where you want to live. Do you plan on living close to your current job? Do you want to live near your parents? Maybe you want to live downtown to enjoy the unique lifestyle. These are all options that you need to explore before you decide to go in to apply for a mortgage.
You then need to consider what type of property you’re looking for (and can afford!). Most young college graduates will start off with a condo. It’s easy to maintain and it perfectly suits our lifestyle as a young person. Plus who wants to shovel snow every day for 4 months (Canadians know what I’m talking about)? On the other hand you could be in your mid-20s and expecting a child with your partner. Then you may be considering a town house or a cozy bungalow. No matter what side of the fence you fall on, you need to clearly know what type of a property you’re looking for before you can think about a mortgage.
If you feel that you’re not ready to purchase a home yet than that’s cool. Sometimes the best investment is the one that you don’t make.
If you think that you’re ready to obtain a mortgage then stay tuned for next week!
(photo credit: Ruth l)