Thinking of buying? These tips, from Suzanne Schultz of RBC Dominion Securities, will help keep your finances in check
Get serious about your down payment
With a down payment of at least 20 per cent you can avoid costly mortgage loan insurance. Consider deferring home ownership until you’ve saved the 20 per cent and find ways to fund that down payment, like withdrawing from your RRSP under the “home buyers plan.”
It’s smart to get a pre-approval from a lender so that you are clear on how much financing you can get for the home. Make sure your lender is pulling your credit and verifying your income. With a firm pre-approval you can put in an offer without fear that your financing could fall through.
Know your numbers
Financial institutions have rules and ratios when granting credit. The amount they are willing to lend you might be more than you can afford without compromising your desired lifestyle. It pays to do your own number crunching to see what you think you can afford each month.
Stress-test your payments
It’s no secret that we are in an unprecedented period of low interest rates. Go online and see what your mortgage payments could be if rates go up one, two or even three per cent. If you can’t afford your payments under those scenarios, reconsider how much risk you take on.
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Beware of bidding wars
With homes going for thousands over asking price in many areas, you could pay more than the appraised value for your home. This means you might need more financing and the down payment you had might be insufficient to avoid mortgage loan insurance. Don’t make a firm offer in a bidding war unless you are sure of your financing.
Consider the ownership
If you are buying a property with another person, including a spouse, it might make sense to put the home in only one of your names. This is most often done for creditor proofing in the case of business owners or professionals, or U.S. citizens exposed to additional taxes. Consult with a tax or legal professional.
Get life insurance
If your family relies on your income to make the mortgage payments, then you need life (and possibly disability) insurance. This is usually an option when you sign up for your mortgage but consider applying for your own policy through an insurance agent, which could save you money and provide flexibility for your future needs.
Fine tune your payment plan
Review your financing options to make sure they meet your cash flow needs and long term goals. Consider a shorter amortization period and increase the frequency of your payments from monthly to bi-weekly or weekly to pay off your mortgage faster and save thousands in interest costs.
Don’t stop saving
Just because you’ve squirrelled away enough for a down payment and bought your home doesn’t mean your saving days are over. Make sure you have an emergency fund and try to stash away some income for the inevitable upkeep - and surprises - that comes along with home ownership.