Many people dream of owning their own home, but are not sure they’re ready to make the financial and emotional commitment. Buying a home can be the biggest purchase of your life and the decision to make the leap can sometimes feel overwhelming.
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The good news is, if you take the time to do a little research and a lot of reflection, a decision to own your home is likely to be a positive one. And if you take the time to think through the decision, there will be fewer surprises along the way.
Here are a few points to consider when examining your financial and lifestyle priorities in making the home ownership decision.
First, consider home ownership a long-term decision. There are many potential rewards to owning a home, but to reap these benefits you need to be prepared to stay in your house for some time. The longer you own your home, the more equity you build in that home. This increases both your personal net worth and your financial security – with the added benefit of living in and enjoying your home while your equity grows. That’s something that renting cannot provide. If you’re ready to settle into a home and a location, the potential financial and lifestyle rewards of investing in a home can be immense.
Beyond your lifestyle priorities, you’ll need to assess your finances to determine whether home ownership is an affordable option for you. Since few people can pay 100% cash down, a mortgage is usually the financing option of choice. For a quick picture of what you can afford, start by listing all your savings and steady sources of income. Subtract monthly expenses (other than rent), including credit card obligations, loan payments and any other deductions (such as monthly contributions for home insurance and property taxes). This will tell you how much money is left each month to cover mortgage payments.
A Scotia Bank mortgage specialist can help you determine what kind of down payment and monthly payments you can afford and explain the various financing options. The specialist will also help you understand how a mortgage is structured and determine the financing package that best suits you.
When the time comes to buy, there are a number of experts you’ll find helpful, such as real estate agents and brokers. They have detailed information on location, the current market, availability of homes within your price range, the best time to buy, and other factors that will help make you comfortable with your decision.
When you base your decision to become a homeowner on a solid foundation of research and planning, you’ll make a more informed decision and be better prepared for any adventures that may come up along the way.
You’ve decided to buy a home. Chances are, like most people, you don’t have the cash to buy it outright and will need to obtain financing. But before you head for the bank or start shopping, it’s wise to determine how much house you can afford. Having a clear sense of your price range will make it much easier to find the home that’s right for you.
Figuring out a realistic price range begins with examining your total financial picture – savings, income, debt, and expenses. This will help you determine the size of your down payment and your ability to make monthly mortgage payments, both key to knowing what you can afford.
First, the down payment. It’s the equity you have in your house from day one. If you’re disciplined, you may already have saved enough for a down payment. Today’s mortgage rates are affordable and banks often require relatively low down payments. Scotia Bank, for instance, offers a Residential Mortgage with only 5% down (with Mortgage Indemnity Insurance). You may find you can afford more house than you thought.
If your savings leave something to be desired though, you’re not alone. The good news is you can probably come up with more cash than you think. Many first-time buyers look to a parent or relative for assistance.
If you haven’t started saving for a down payment for your home purchase, now is the time.
Start saving with either a Pre-authorized Contribution (PAC) plan or by moving funds from a low-rate savings account into a higher rate Term Deposit.
Of course, there are advantages to coming up with a more substantial down payment. The larger the down payment, the less financing you’ll need, which means you can lower your mortgage payment or pay off the mortgage sooner.
Once you’ve got an idea of the size of your down payment, you need to determine how much mortgage you can carry on an ongoing basis. The amount you can carry will depend on your household income. To calculate gross household income, add up your salary, wages, commissions and any other assured income, before deductions, along with those of your spouse.
Beyond the actual mortgage payment – the largest monthly expense for most homeowners – it’s important to remember there are other regular expenses to include in your calculations. As a homeowner, you’re responsible for all utility bills (gas, electricity, water, telephone, cable) and household insurance. You may also opt for mortgage life insurance, which helps pay off your mortgage balance in the event of your death. And remember to include property tax.
Once you’re a homeowner, you should also prepare for the maintenance and repair costs that inevitably arise, and any renovations you might want to make. Finally, if you feel you need further help determining your price range or you’re not fully confident in the budget you’ve developed, talk to an expert, like a mortgage specialist. Scotia Bank’s mortgage specialists can help you identify your price range and lead you along the exciting road to home ownership.
Whether you choose to buy an existing home or build from the ground up, there are certain costs you can count on, above and beyond your monthly payments. It’s important to be aware of these so that you can come up with a realistic budget – one that provides for the hidden costs of home ownership that can catch you off-guard. Once you’ve found your dream home, there will be certain expenses related to closing the deal. These may include legal fees, the cost of an appraisal, and a home inspection. And, depending on when you take possession, you may have to reimburse the vendor for any expenses they prepaid for the time period after your closing date. You should also have the sale of agreement reviewed by an Attorney at Law.
Many people make their new home their own by painting, buying new furniture, or renovating. While these upgrades can make you feel right at home, the cost of such extras can quickly add to the purchase price.
Then there’s the cost of the actual move. This can vary widely depending on whether you do it yourself or hire professionals. Even with professional movers, the cost depends on who you hire and how much help you want. They can simply move your belongings from the old location to the new or do everything from supplying boxes, tape and packing materials to packing and unpacking for you.
After the move, the fixed expenses of home ownership are often referred to as PITI, for principal, interest, taxes and insurance. Generally, mortgage payments make up the biggest expense – followed by property tax, based on a percentage of your home’s value. You’ll continue paying property taxes as long as you own the property.
Next is your property insurance, a must to obtaining financing from most banks and other lending institutions. Your policy will cover most fire and the oft-related damage to your property, but be aware certain things may not be covered. Flood protection is usually not included, so if there are risks where you live, look into obtaining the appropriate type of coverage.
Your utilities are another regular home ownership expense you can count on. Electricity, gas, phone, cable, internet and other utility bills will vary according to what you have in your home and how much you use it.
Beyond the inevitable expenses, there are some you can’t predict but should nonetheless prepare for. They usually involve repairs and maintenance. While upgrades and renovations may be optional, others, like repairs, may not be able to wait, depending on the nature of the problem.
Many home owners prepare for the unexpected by saving a small sum in a special account each month. Some experts recommend setting aside at least 1% of your home’s purchase price each year for repairs and maintenance.
While you’ll undoubtedly spend less some years and more others, it all boils down to being prepared. Provided you embark on this adventure with your eyes open and a realistic budget, home ownership will be a move you never regret.
You’re ready to become a home owner, but haven’t decided whether to buy an existing home or build one from scratch. Each has its benefits – but only you can decide which route to take.
To ensure you make the decision that’s right for you, it pays to become as well informed as possible about each option. Here are some key points to consider when making the ‘buy’ or ‘build’ decision.
For most people, the first home search priority is location, whether you’re searching for an existing home or a lot on which to build. In choosing a location, start by looking at your individual or family’s needs. If you have young children, for instance, you’ll likely want a neighborhood with parks, decent schools, recreation facilities, and a community feel, with other likeminded families. You may find these kinds of amenities come at a premium. Other locations may not have these family amenities, but will have proximity to restaurants, cultural spots, a business district and shops, and appeal to homeowners with no or grown children.
Once you’ve examined your location needs and have identified potential neighborhoods, you have to look at availability of lots and homes in these areas. Economic conditions often determine how many homes there are to choose from. And land in the location you prefer may be beyond reach or scarce, although new parcels of land are sometimes made available for development, presenting new building opportunities.
Location is definitely a key priority to consider, and what you find – or don’t find – in your area of choice can often influence or even dictate your buy or build decision.
Cost is usually another major consideration in your decision to buy or build. Depending on their age and how well they’ve been maintained, existing homes can sometimes require costly updates and repairs, beyond their purchase price.
Similarly, when you build, and are financing your lot and construction, you’ll need to factor in the additional costs of short-term construction financing. Scotia Bank, for one, offers a Lot Loan to help you out with the initial purchase. Once building begins, you can cover the costs with interest-only payments through a Home Builder Loan. Then, when your home is finished, you can roll this financing into a Residential Mortgage
While you often get precisely what you want when you build your own home, vendors of existing homes can be anxious to sell. If it’s a buyer’s market, you can secure great value through an existing home purchase. So from a pure cost perspective, you’ll need to do your homework and keep your options open to make the right choice.
Of course, cost is not everything. Other factors to consider include timing. When you buy an existing home, you can usually move in as soon as the deal closes, typically within a few months of your offer being accepted. Anyone who’s built a home, however, will tell you patience and flexibility are the key. Count on up to four to six months to build a home, depending on the availability of reputable contractors, builders and architects. So, if you need to move in sooner rather than later, buying an existing home is probably the more suitable option for you.
At the end of the day, it’s usually more straightforward to buy an existing home than it is to build one, if only because you’re dealing with fewer parties and a shorter timeframe. For some, though, the excitement of building a home that perfectly meets their tastes and specifications makes the wait well worthwhile. Either way, you end up with a place of your own and all the benefits of home ownership.
There’s no question: buying a house is the biggest purchase most people ever make. And because homes are such a big-ticket item, most purchasers need financing. Deciding which mortgage is right for you takes a little research, along with advice from a bank’s mortgage expert. Here are some basic mortgage facts to help you make your choice.
Before you consider the type of mortgage you need, you first have to qualify. This usually requires three things:
Lenders will need to know about your job, other income and credit history.
Once you qualify for a mortgage, one of the key factors to consider is the duration of the loan – referred to as the amortization period.
Some new homeowners find the monthly payments more manageable when they opt for a full 30 years, making smaller payments over a longer time period. But there’s a downside –the longer the amortization period is, the more interest you end up paying over the long term.
Because of these higher interest costs, many people choose to pay off their loans as quickly as possible by increasing their monthly payment amounts. The payments each month, though, are substantially higher since they must be made in less time.
You should also look the option of prepaying a lump sum of your mortgage. While your future monthly payments will stay the same, more of each payment will go towards paying off the principal because the lump sum has reduced the amount you owe and lowered your interest costs. You’ll end up paying off your mortgage much faster this way.
The type of mortgage rate is also an important factor to consider. Many like the security and predictability of a fixed-rate mortgage, and are willing to pay slightly more for peace of mind. While you often pay a lower rate for a variable-rate mortgage, you put yourself at some interest-rate risk. This type of loan is great if rates remain stable or drop, but you should ensure you can afford higher payments if interest rates rise.
In addition to a choice of amortization periods, you may also have a choice between a fixed-rate mortgage and one with a variable rate. The interest rate for fixed-rate mortgage remains the same over the life of the loan while the rate on a variable-rate loan changes as interest rates fluctuate on the open market.
Many like the security and predictability of a fixed rate mortgage, and are willing to pay slightly more for peace of mind. While you often pay a lower rate for a variable-rate mortgage, you put yourself at some interest-rate risk. This type of loan is great if rates remain stable or drop, but you should ensure you can afford higher payments if interest rates rise.
If you’re buying an existing home, you’ll most likely need a typical residential mortgage. But if you plan to build, the mortgage process often unfolds in stages, as most people need to fund construction as it happens.
To get construction started, banks such as Scotia Bank offer financing programs that begin with a Lot Loan, which you have up to 15 years to repay. Once you begin construction, you’ll consolidate this loan into a Home Builder Loan, which allows you to pay your builder in stages during construction. Your monthly payments consist only of interest, which helps keep your costs down. When your home is finished, you’ll roll your Home Builder Loan into a Residential Mortgage and start making blended payments of principal and interest to build equity in your new home.
Whether buying an existing property, or building a home from the ground up, there are certainly many details to weigh in making a mortgage decision. But by doing your research and relying on the expertise of your mortgage specialist, you are sure to find the mortgage that meets your needs.