Apr
30
2018
Home & Garden
2018

First Time Homebuyers Guide

Shyam Ganesh
BY Shyam Ganesh —  comments
(1 Vote)

Buying a home is one of the biggest investments you will ever make. This article is intended as a practical first-time home buying guide: so that you can be a financially savvy buyer!

Let’s get right into it, shall we?

Before making any big decision, there are always some major questions we need to answer. I’ve got two for you to start with.

First: Do you plan on being here for the next 10 or more years? (Let’s assume the answer is yes - you have a stable income, your family is really happy here, and you’re not looking for the first opportunity to “move back home”).

My second question is:  What can you afford? Unfortunately, the worst way to answer this question is by applying for a mortgage and using your pre-approved amount as your price point.

 

Here are two reasons why:

This number simply represents the risk the lender is willing to take on you.

  1. It doesn’t account for everything else you want in life (cars, vacations, retirement, being debt free, helping your kids go to college). Therefore, if you don’t take all this into consideration, there’s a good chance you’re going to give up something else that’s really important to you.
  2. It’s based on current and past income. Even if a good chunk of it was earned in bonuses and overtime. It’s not uncommon for an oil worker here to have a base salary of $140,000 but a total compensation for the last 2+ years to be well over $200,000. It might feel like this could never change, and I hope you’re right, but take a hint from what has happened in our economy over the last 3 years: the only certainty we have is that things will change.

 

Now that we’ve established that there’s more to it, here’s how you can be prepared for the booms as well as the busts, and come out on top:

  1. Map out your top life objectives. Apart from buying a home, what else is a MUST for you? Travel? Having a debt-free retirement? Helping your kids get through school? A new truck? Put them in your order of priority.
  2. Map out your current cash flow (Mint.com is a simple tool/app to start)
  3. How much do you have saved up already?
  4. After you set aside some emergency funds, how much can you spare for the down payment?
  5. Now talk to a realtor and find out what the market rate is for your dream home.
  6. Consult a mortgage broker and find out what you could qualify for.
  7. Map out how your cash flow will change if you were to buy your dream home (including property taxes, home insurance, utilities etc.).
  8. For any of your goals listed in #1 that you aren’t already savings for, add a monthly or annual amount you’d like to put away.
  9. If you’re in the red, you’ll have to make some adjustments whether it’s saving more up front, starting with a smaller home, or giving up on something else.
  10. Finally, how much of your total expenses are expected to be funded with overtime and/or bonus cash? If it’s more than 10 or 20%, how will you handle the next economic downturn?

 

As you work through the above process, you’ll begin to gain clarity on what you can realistically make happen. As a result, your decision will be more clear-sighted and manageable.

 

To help you on the journey, download our free DIY guide at growyourwealth.ca/homebuyer. It includes ideas on: (1) how to fund your purchase through savings, RRSPs, and/or TFSAs; and (2) how to improve your credit score so you can qualify for a better interest rate!

Also, if you’d like to be coached through the process by a Certified Financial Planner text away at (780) 747-1248.  We’d love to do the heavy-lifting for you so that you can sleep better at night!

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