Digging into your financials
In the first part of this blog series, I gave an overview of key factors to understand before taking the plunge into home ownership. The next important topic is fully analyzing your financial situation and crunching the numbers.
Things you will need to look at;
1. What are your current expenses?
Begin by writing out all the items you spend your money on in a month. This will help work out a budget allowing you to determine how much you can put down on a house. As you dig deeper into your financials you may discover that buying a house is not in the budget at the moment.
2. What are your monthly debt payments?
Calculate how much money goes towards paying off debt each month. This kind of information is required during the actual home buying process so it’s best for you to start early. This includes looking into all outstanding loans, credit cards, and other lines of credit.
3. What are your spending limits in terms of purchasing a home?
This will be determined from the total cost of expenses, your monthly debt payments and overall lifestyle. You are able to gauge the amount of money you will spend on your home but don’t forget to add in all the miscellaneous costs associated with ownership. This calculation will answer the question – “how much can we afford when shopping for a home?”
Things to consider when purchasing a house;
- In relation to your monthly income, how much are your monthly house expenses?
- How much debt will you have to pay off each month combined with house expenses?
- Can you afford the initial down payment?
What is mortgage loan insurance?
This type of insurance is set in place to protect mortgage lenders against fraud, default and allows buyers to purchase homes with lower down payments such as 5% with similar interest rates to other buyers with a down payment value of 20%.
Analyzing the calculations
With all the numbers crunched what are they telling you? If the numbers aren’t looking good it would be smart to wait and start paying off some debt before committing to house payments. Also, cut expenses where ever possible, especially when saving for your down payment.
If your calculations were positive than it’s time for the next step in the process; a credit report. This will help you get approved for a mortgage. After that is the fun part, choosing your home; but that’s for another blog post.
Stay tuned for our next entry on choosing your home.
Interested in buying or want to talk mortgages? Give me a shout at 613 354-9037 for a free mortgage consultation to get you on your way to becoming an official home owner.