Jan 2012 and it is the time of the year when everybody makes resolutions .
Lets discuss how we can stay on track to fulfill that resolution.
When you decide to take the plunge into home ownership, it can be overwhelming.
From the slow process of saving for a down payment, to exhilarating weekends of open houses and viewing appointments, to the stress of putting in an offer and negotiating the right price – there’s a lot on your mind!
But long before you start seriously looking for your first home, you should already have a realistic (and detailed) monthly budget to guide you. Here are a few things to consider:
Start by paying yourself first
When I started my property search, I knew that I did not want to give up my $700 per month contribution to my RRSP. The idea of owning my home is a big deal, but retiring early and comfortably is my most important financial goal. So, keeping that in mind, I started by subtracting $700 from my net income. Then, I subtracted amounts for travel, emergencies, property tax and home repairs, auto insurance and general savings. The money that was left over after all of my savings goals were met, ended up being my monthly budget – and what I based my mortgage off of.
By paying myself first, and creating a budget around my savings goals, I am able to save almost 50 per cent of my net income each month.
Owning a home means more expenses
When you own your own home, you pay whenever anything breaks. You don’t have the luxury of calling a landlord when your stove breaks down, or when the dishwasher starts to leak. It is crucial to have the room in your budget to save for these unexpected and costly expenses.
Additional monthly expenses associated with home ownership can also include maintenance fees, property tax, utilities, home insurance, and household miscellaneous expenses.
Crunch the numbers to see what you can afford before look for a real estate agent. Take into account your current income (not what you hope to be making in the future, and not any irregular income either), and don’t forget to factor in bigger annual expenses, like your sun vacation every January, ski pass, car insurance, or membership dues.
It can be incredibly tempting to stretch yourself when it comes to buying property. Especially when your realtor takes you to see listings that seem much nicer than what is in your comfortable price range. While it’s the realtor’s job to show you all of your options, it is up to you to convey to them what your budget is going to be. And once you have decided on that figure, be firm with it. As a first-time homeowner, your first place is just a starting point, and most likely will not be your dream home.
Fixed expenses are your choice
Most of your monthly expenses – like your mortgage amount, maintenance fees, internet/cable, and utilities – are considered fixed expenses when you create a budget. But in reality, you get to decide how much you spend on each of these items before you commit to them. Don’t like the cost of cable TV, or think those condo maintenance fees are too high? Look elsewhere if you don’t want to pay for them.
Plan to get ahead
If living a debt-free life is a priority for you, then paying more than the mortgage minimum will be key.
When I had narrowed my property choices down to two options, I had a big decision to make. Would I choose the 2-bedroom townhouse that cost approximately $250 more per month in mortgage and maintenance fees? Or would I choose the 1-bedroom townhouse with lower payments? I could comfortably afford both, but in the end, I decided to go with the less expensive 1-bedroom townhouse and opted to increase my monthly mortgage payments instead.
By choosing the accelerated bi-weekly option and topping up each of those payments by $50, I will be eliminating almost 4 years off my mortgage. And the extra money I have in my budget due to choosing the less expensive 1-bedroom home will mean that I can pay down my mortgage that much faster by putting down a lump sum payment every year on my anniversary date.
Track every penny
For the first few months of home ownership, it’s a good idea to track every penny you spend. This might seem a little excessive, but it will give you an accurate snapshot of your spending habits as a homeowner. As with anything, the more effort you put in, the greater the benefit and the result.
Call Tom Sachdeva at 647-299-4529 if buying Toronto Real Estate is also your resolution.