Thinking About Home Ownership?
If you are toying with the idea of jumping from the renter’s pool straight into the world of home ownership, there are things to consider.
Rent vs. Buy
There is an ongoing debate as to which makes more sense financially. In short though, if you can afford it (meaning you are able to make a monthly mortgage payment, keep other debt in check and accumulate some cash savings in the meantime) then owning is a good financial move.
Real estate is shelter first- but also serves as an investment, and lets you build up the asset side of your balance sheet, with your monthly shelter (rent or mortgage) payments.
Owning Means you Own it
With this homeowner freedom- there comes a new level of responsibility- financially and physically for what transpires with the property. Are you up for it?
One of the perks of renting is that you can relinquish responsibility for the property if something breaks or is in need of repair. While it is nice to have the option for someone else to have that responsibility, the downside of these conveniences is, of course, that you are not building equity with your monthly payments, but your landlord is.
Townhouse, condo, freehold or duplex? What kind of property are you interested in? Do you long for a rolling backyard, a fixer-upper with projects to keep you going or are you seeking a small space with low-maintenance, turn-key living?
Different property types offer different styles of living, and different costs. If you purchase a townhome, condo or garden home, expect to pay extra monthly common fees to take care of building maintenance, snow removal and lawn care (you can be a homeowner and still have these things looked after).
Location, Location, Location
The great mantra of real estate, “location, location, location” is so well-known for a reason. It is the single greatest strategy a homeowner can employ to both preserve and boost the asset value of their property.
If you are buying a home with an eye to reselling eventually and making some money in the meantime, don’t just select a home based on the fact that you like the neighbourhood (which is important, for sure too!). Look around for things like access to public transportation, nearby amenities (shopping, restaurants), green space (parks etc.)- as well as schools (even if you don’t need them right now. The proximity of good schools can raise the price of a home in a resale environment).
When thinking about home ownership, you’ve likely considered the costs of a mortgage (which may or may not be similar to your current rent, depending).
Don’t forget all the extra costs of homeownership though (some are one-time charges, but some are ongoing). Don’t forget your down payment (most likely a minimum of 5 percent of the purchase price), mortgage insurance (this is a premium your lender will require to insure the mortgage loan), homeowner insurance, property taxes (plus land transfer taxes, most likely, on purchase), closing costs, lawyer fees, moving and other expenses- like furniture and décor (this can be done in a budget-friendly way, over time, but is something to consider).
In addition to your mortgage payment, can your budget withstand these too? It is worthwhile to do a financial stress test on your budget in different scenarios. Do you have wiggle room in the event of a housing emergency that requires a financial injection (i.e. your roof needs immediate repair, furnace breaks down)?
What about job loss, illness or interruption? It is a very good (like necessary to your ongoing financial health) idea as a homeowner to sock away some cash to provide for such events.