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Home » Home Buying Guide » Deciding to Buy

Deciding to Buy

It’s important to look at realistic costs of home ownership when you’re deciding to buy a new home. Our Home Buying Guide will help you to determine if you’re ready and the steps through the process of buying a new home. Here are financial factors to consider before deciding to buy: rent vs. buy, down payment, how much you can afford, and a back-up plan.

Do the math between renting versus owning

If you are blindly assuming that you are ‘throwing your money away on rent when you could be building equity’ without having done the math of whether or not this is actually true, you could end up as someone who regrets not having done their homework sooner.

Renting is not throwing your money away – you are simply paying for the service of renting shelter with amenities from someone else. You can’t compare the price of rent to just the mortgage payment without at least taking into account how much extra utilities, maintenance, taxes and so on will cost you.

Do the math before deciding to buy a new home. In some areas, it will be cheaper to buy than to rent, and in others, cheaper to rent than to buy.

Be realistic about what it costs to own a home

Owning a home is not just the mortgage. You have to consider the extra cost of utilities (it is far more expensive to heat an entire home versus an apartment for instance), maintenance (replacing the furnace, windows, etc), repairs, housing taxes, and last of all, fees such as home inspection closing costs.

There are plenty more things to consider, so don’t just assume if your mortgage is lower than what it costs to currently rent, that you’re in a good spot.

Financial Planning

You have 20% saved as a down payment and additional savings set aside

Having 20% saved is not just having 20% saved, it is proving to yourself and your lender that you are able to save that amount of money and that you are financially ready to take on the extra cost of a home. Don’t forget to consider moving expenses and utility deposits.

Your entire net worth should not be placed in a single asset, be it all in one company on the stock market, all in a bank in a low interest savings account, or lastly, all in a physical asset – your house.

You should at least have savings and investments set aside from your down payment. I like the ratio of 50/50, meaning 50% invested and 50% as your down payment so that not all your eggs are in one basket.

The home costs no more than 3 times your income

A good rule of thumb is really 2.5 times your income, but lenders could go up to 3 times your income. This ratio is used so that you can see how comfortably you can afford your home.

The bottom line is that owning a home is not just the fun and games of shopping for one, bidding on it and then obtaining the keys to be able to start redecorating and renovating. A home is a real investment and a physical asset that can be difficult to unload for cash if you fall on hard times, so you shouldn’t decide to buy a new home and put all your money into one without doing your homework first.

You have a plan in place in case you lose your job(s)

Run through scenarios of how things will play out if you are unable to make the income you are making right now for 3 months, 6 months and 1 year. That way, at least if you do lose your job, you will already have a Plan B in place to cover your mortgage.

If there are two incomes in the household, you might want to consider living (temporarily) on the steadiest one and banking the other.

Even if you don’t lose your job, you might end up having to take time off anyway, due to medical reasons or because there’s a new bundle of joy on the way.

Check out each of the steps in our Home Buying Guide. For more information about the home buying process, contact the Doakes Team, Realtors with experience of the process to guide you through your goals.

See below and our Pinterest Page for more helpful infographics.

 

 

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